Supreme Court Verdict Sparks Dialogue
UK Supreme Court Ruling Paves Way for Motor Finance Redress Scheme
In a significant development for the motor finance industry, the UK Supreme Court has ruled on commission arrangements, overturning a previous decision that deemed certain 'secret' commission arrangements unlawful. The ruling, issued on 1 August 2025, has narrowed the scope of consumer claims but left open the possibility of redress for affected consumers under the Consumer Credit Act.
The Financial Conduct Authority (FCA) has announced its intention to consult on a redress scheme focused on historic Discretionary Commission Arrangements (DCAs) and related unfair motor finance commission cases. The consultation is set to begin in early October 2025 and will run for six weeks, with the goal of having the scheme operational in 2026.
The FCA's decision comes in response to concerns that many firms failed to comply with disclosure rules and laws when selling motor finance, leading to consumers overpaying due to undisclosed or unfair commission payments to motor dealers acting as credit brokers. The redress scheme would address cases involving nondisclosure or unfairness related to discretionary commissions, high commissions, and other factors identified by the Supreme Court as potentially creating an unfair relationship under the Consumer Credit Act.
The industry is urged to meet this challenge constructively and demonstrate a commitment to fairness. Lenders and motor retailers will need to engage constructively in the consultation process to help shape a fair and proportionate framework. Courmacs Legal expects many consumers to be entitled to redress with the next chapter being in September when the Court of Appeal will hear a case related to discretionary commission arrangements.
Meanwhile, members of the House of Lords' Financial Services Regulation Committee are putting political pressure on the FCA to scale back the proposed scheme's scope, suggesting limiting the claims period to six years (in line with the Consumer Credit Act) to reduce complexity, avoid delays, and mitigate financial strain on lenders.
The FCA has extended the deadline for firms to respond to complaints related to DCAs and motor finance commissions until after 4 December 2025, allowing more time to handle cases while the redress consultation and scheme development proceed.
Ian Hughes, CEO of Consumer Intelligence, believes the ruling provides the clarity the industry needed while ensuring accountability. Darren Smith, Managing Director at Courmacs Legal, calls for clarity in customer agreements, emphasizing that the ruling does not cover discretionary commission arrangements. The FCA's enhanced Consumer Duty already guides better transparency and outcomes in the market.
In summary, while the Supreme Court ruling refines the legal framework narrowing but not eliminating consumer claims, the FCA's forthcoming consultation in October 2025 represents the next crucial step toward establishing a compensation scheme for affected motor finance consumers, with implementation expected in 2026. This is happening amid calls for a more targeted approach to balance consumer fairness with the stability of the lending market.
[1] Financial Times, "FCA urged to scale back motor finance redress scheme", 2025. [2] The Guardian, "UK Supreme Court overturns ruling on 'secret' commission arrangements in motor finance", 2025. [3] BBC News, "FCA to consult on redress scheme for motor finance consumers", 2025. [4] Autocar, "FCA to consult on redress scheme for motor finance consumers", 2025.
The Financial Conduct Authority's redress scheme, focused on historic Discretionary Commission Arrangements and related unfair motor finance commission cases, aims to provide a means of financial redress for affected consumers following the UK Supreme Court's ruling on commission arrangements in August 2025. This scheme, proposed to be operational in 2026, is a significant development in business regulations concerning the finance industry and events related to motor finance.
