Car industry swerves a major financial crisis
Many of us own a car, and many of us have used financing arrangements over many years to make these purchases. In fact, so many of us that the industry is huge, only second to the banking industry for size. At the same time, very few have ever taken the time, or have had the time, to read through the granular terms and conditions.
For years, car dealerships received undisclosed commissions from lenders such as Black Horse Finance and Close Brothers for arranging finance deals. These commissions were often tied to the interest rate charged to consumers, incentivising dealers to push higher rates.
The practice came under scrutiny for being opaque and potentially unfair to consumers, as it came to light that commission payments in the background had not been clarified with consumers, but instead had significantly benefitted car dealerships.
As a result, there were rumours that the UK car finance industry may face huge liabilities due to these Discretionary Commission Arrangements (DCAs), estimated by money-saving-expert Martin Lewis to total around £18 billion. It was speculated that consumers who paid higher interest rates due to undisclosed commissions may be owed refunds of the overpaid interest.
Key Legal Milestones
Beverley Potter v Canada Square Operations Limited
This was a landmark case where Mrs. Potter successfully challenged the non-disclosure of commission in her car finance deal with Canada’s former entity, Egg Banking Plc.
Naturally, Canada Square disagreed and they appealed her claim – they argued that the initial judgement was wrong in that there was no duty of care incumbent upon them with regards to the end consumer.
In dismissing the appeal, the Justice commented:
“It cannot sensibly be maintained other than the Appellant acted deliberately in the sense that it took a conscious decision not to disclose its Payment Protection Insurance (PPI) commission to the Respondent… and accords with basis common sense”.
This case then reached the Court of Appeal in June 2022, where judgement was presided over by five Lords. They too dismissed Canada’s appeal, saying:
“Once one returns to the plain language of the provisions, their application to the facts is relatively straightforward …the Defendant deliberately concealed those facts from her … by consciously deciding not to disclose the commission”.
The High Court and Court of Appeal both ruled in Mrs Potter’s favour, which raised concerns that the car industry may have to pay out to consumers for failing to disclose commission in car finance deals.
FCA Ban
In 2021, the Financial Conduct Authority (FCA) banned deals where dealerships received commission from lenders based on interest rates charged to the end consumer, named DCAs, or Discretionary Commission Arrangements (DCA). They cited concerns that interest rates could be set too artificially high in a bid to maximise income for dealerships.
Supreme Court Ruling
On the other hand, more recently, in July 2025, the Supreme Court overturned the Court of Appeal’s broader interpretation. They made a final binding judgement on a similar matter of principle as to the Potter commissions case.
- In a pivotal decision involving Close Brothers and FirstRand Bank, The Supreme Court ruled that.
- Non-disclosure of commission alone does not make the lender-consumer relationship unfair.
- Dealers do not owe a fiduciary duty of loyalty when arranging finance.
- Only egregiously unfair or inflated arrangements may qualify for compensation.
Financial Impact
With that Supreme Court judgment, the car industry breathed a huge sigh of relief as to what might have meant billions in compensation paid out to consumers. The final ruling significantly reduced the scope of potential payouts - from an estimated £45 billion to between £5 billion and £15 billion.
Now, only consumers with particularly unfair or high-commission arrangements (especially under DCAs) may still be eligible for compensation. Any commission arrangements that were either 0%, or at very low levels, will likely not see any claim upheld.
A formal consultation for payout is due to be launched in early October 2025, with any payouts made during the course of 2026.
Why It Matters
This decision averted a financial crisis for the car finance industry and major lenders, which could have faced PPI-scale liabilities. It also reshaped consumer expectations and legal standards around transparency in car finance.
This may lead to fewer mass claims: With the ruling narrowing the scope of consumer compensation, forensic accountants may see a decline in demand for large-scale loss quantification tied to commission mis-selling.
Instead, the focus may shift to individual or high-value claims where unfairness or overcharging can be clearly demonstrated - requiring deeper forensic analysis.
How we can help
As the consultation period begins, now is the time for lenders, dealerships, and forensic professionals to review their historic arrangements, prepare for potential claims, and ensure future practices meet the highest standards of transparency. Our Forensic Services team have experience to help get ahead of the curve. For further information, please contact your usual Crowe contact.
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