UK Banks Face Accountability for Car Loan Scandal: Key Insights

UK lenders are preparing for a crucial decision from the Supreme Court concerning motor finance mis-selling. This ruling could potentially match some of the largest scandals faced by consumers in the country.

The Supreme Court in London is set to announce its verdict on a series of claims by car buyers who took out loans without being aware of the commissions that lenders were paying. The outcome will dictate parameters for the UK regulator, which is responsible for implementing a massive redress scheme for banks, with estimates suggesting costs could exceed £30 billion.

Judges have expedited the delivery of this important ruling, allowing the Financial Conduct Authority to outline the compensation scheme within six weeks.

Analysts at Jefferies highlight the significance of this decision, describing it as potentially “the most consequential ruling for lenders in recent history.”

Will the Supreme Court favor consumers?

This ruling comes nine months after a lower court redefined longstanding consumer finance practices. It ruled that banks cannot pay commissions to car dealers without securing the customer’s informed consent.

The decision caught the consumer finance sector off guard, leading to significant declines in stock prices for several banks. While the ruling will be announced outside of European trading hours, some lenders have American Depositary Receipts that could draw attention during major news events.

The judges noted that customers place their “trust and confidence” in brokers to obtain competitive financing. A decision favoring consumers could revolutionize how consumer finance is approached overall.

Explainer: UK Banks Brace for Court Ruling on Missold Car Loans

What are the cases about?

In the three cases presented to the Supreme Court, each motorist secured financing to purchase a used car. In one instance, neither the lender nor the broker disclosed the commission amount, while in the other two, though the potential for commission was mentioned, customers were not informed adequately.

Judges previously stated, “Burying such a statement in the small print, which the lender knows the borrower is unlikely to read, will not suffice.”

These cases are being appealed by Close Brothers Group Plc, which had temporarily halted new UK motor finance activities after a Court of Appeal ruling, along with South Africa’s FirstRand Ltd.

What responsibilities do car dealers have towards customers?

A critical legal question is whether car dealers, acting as credit brokers, must exhibit duties of loyalty to customers when arranging car financing. These duties, referred to as a disinterested duty and a fiduciary duty, tie into whether or not commissions should be disclosed.

The Court of Appeal ruled that lenders could be liable if a secret commission was paid to the broker, violating those loyalty obligations.

Should the judges affirm the existence of a disinterested duty — indicating dealers must provide information impartially — legal experts warn the repercussions for lenders could be considerable. It could pave the way for nearly any consumer utilizing car finance to seek compensation.

What else is noteworthy?

Even in the event lenders successfully challenge the ruling, they may still face claims from customers who were subjected to discretionary commissions. This practice, which enabled brokers to adjust financing deal interest rates, was banned in 2021, as the Financial Conduct Authority noted it incentivized dealers to increase borrowing costs for customers.

Another aspect to watch is Chancellor of the Exchequer Rachel Reeves’ response. HM Treasury attempted to intervene, claiming the lawsuit was complicating Britain’s regulatory landscape. Though the Supreme Court judges dismissed that application, reports suggest government lawyers are considering legal changes to safeguard lenders.

With input from Ronan Martin.

©2025 Bloomberg L.P.

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