UK Supreme Court to Rule on £44bn Car Finance Dispute
The UK’s highest court is set to issue its decision on the £44bn car finance dispute, which could determine whether millions of drivers are eligible for compensation due to unfair lending practices.
The Supreme Court’s ruling, expected after markets close at 4:35 PM on Friday, will decide whether to uphold a Court of Appeal judgment from October that found hidden payments from lenders to car dealers were illegal.
In the earlier ruling, test cases determined that undisclosed commissions paid to brokers arranging car loans violated regulations. Lenders involved in the case—FirstRand Bank and Close Brothers—challenged the decision, bringing it to the Supreme Court.
Roughly 90% of new cars, along with many used vehicles, are purchased using financing agreements. If the Supreme Court fully supports the prior ruling, customers could be owed billions, creating significant financial consequences for lenders.
Lloyds Banking Group, heavily involved through its Black Horse division, has already set aside £1.2bn for possible repayments.
Representatives of the car finance industry, however, argue that their practices were lawful.
Many buyers who purchased vehicles before 2021 may already qualify for compensation due to the Financial Conduct Authority’s ban on discretionary commission arrangements (DCAs) that year. These arrangements allowed dealers to earn more by securing higher loan rates for buyers.
The FCA is expected to establish a central compensation system for affected borrowers and will clarify its plans within six weeks of the Supreme Court’s decision.
If the court upholds the appeals ruling in full, the number of potential claimants could increase substantially. However, siding with lenders would drastically limit repayment possibilities.
Earlier this year, the Supreme Court dismissed an attempt by the government to intervene, despite concerns that large compensation payments could destabilize the car market.
Officials have stated they seek a fair resolution that compensates wronged borrowers without disrupting lenders’ ability to provide financing for future vehicle purchases.
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