Government barred from intervening in landmark car finance commission battle
The Supreme Court has prevented Chancellor Rachel Reeves from intervening in a high-profile car finance lawsuit that experts believe may affect millions of UK buyers.
The case concerns non-discretionary lender-paid dealer commissions—fees added to finance deals without buyers’ knowledge—which could trigger a massive compensation bill.
The lawsuit centres on allegations that sales personnel, acting as brokers, were incentivised to charge higher interest rates so they could receive larger commissions. After the Court of Appeal ruled that lenders must compensate customers in situations where the commission was not disclosed, banks appealed to the Supreme Court. The country’s highest court is set to hear the case in April.
Downing Street last month voiced concern over the magnitude of potential payouts, particularly the impact on UK banks. Despite wanting customers to receive rightful compensation, the Government hoped to intervene to address the consequences for the financial sector. However, the Supreme Court rejected this move.
A Treasury spokesperson confirmed: “We respect the court’s decision to not grant our application to intervene… and will monitor it closely.”
The original appeals were brought by three customers against Close Brothers and Firstrand Bank, following rejections of their claims in lower courts. The Court of Appeal unanimously found that “a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent.” This effectively prohibits dealers from profiting through finance deals unless buyers explicitly agree to the commission arrangement.
The case has upended a longstanding practice: historically, dealers receive commissions from banks or lenders for helping to broker car finance. Many manufacturers and dealers have since started disclosing commission rates to comply with the ruling. The situation has been described as the most significant finance scandal since the Payment Protection Insurance (PPI) debacle of the 2010s.
Lloyds Bank, owner of prominent car finance lender Black Horse, has set aside £450 million to cover legal costs and potential compensation claims. These steps follow a Financial Conduct Authority (FCA) investigation in early 2024, prompted by more than 10,000 complaints about discretionary commission arrangements (DCAs) between 2007 and 2020. DCAs permitted dealers and brokers to adjust interest rates on hire purchase (HP) and personal contract purchase (PCP) deals in order to increase their own commissions.
With no intervention from the Government, the spotlight now falls on the Supreme Court hearing scheduled for April. Observers in both the car and finance sectors are watching closely, as the outcome could reshape commission structures and significantly change how customers are sold car finance in future.
