The UK Supreme Court has granted permission for Close Brothers and FirstRand to appeal a pivotal Court of Appeal ruling that deemed undisclosed commission payments from lenders to car dealers unlawful. This decision has sent shockwaves through the motor finance industry, potentially exposing it to compensation claims estimated at up to £30 billion.

The forthcoming Supreme Court hearing, expected by April 2025, will address the legality of undisclosed commission payments in car finance agreements—a practice that has raised significant concerns about transparency and consumer protection. The outcome could have profound implications for financial institutions, regulatory practices, and consumer rights within the UK's financial services sector.

In October 2024, the Court of Appeal ruled that paying "secret" commissions to car dealers without disclosing the sum and terms to borrowers was unlawful. This decision opened the door to potential compensation claims amounting to billions of pounds.

The Financial Conduct Authority (FCA) is reviewing discretionary commission arrangements and has extended the deadline for consumers to file complaints related to these commissions to December 2025. This extension aims to ensure fairness and comprehensive assessment of the issue.

In response to the ruling, Lloyds Banking Group suspended commission payments across its £15 billion motor finance division and allocated £450 million for potential compensation.

Close Brothers paused new motor finance business and set aside £165 million for related expenses.

Santander UK delayed its full UK results to assess the ruling's impact, with analysts predicting sector-wide redress costs up to £16 billion.

In December 2024, the UK Supreme Court granted permission for Close Brothers and FirstRand to appeal the Court of Appeal's decision. The hearing is expected to take place by April 2025.

The FCA has expressed the need for a swift resolution, stating, "We previously wrote to the supreme court asking it to decide quickly whether it will give permission to appeal and, if it does, to determine the substantive appeal as soon as possible."

The case underscores the importance of transparency in financial agreements and the necessity for consumers to be fully informed about commission payments that may affect their loan terms.

Financial institutions are being scrutinized for past practices, highlighting the need for accountability and adherence to fair lending standards.

The potential compensation claims could have significant financial implications for lenders, reminiscent of the payment protection insurance (PPI) scandal, which cost banks over £50 billion in compensation.

As the Supreme Court prepares to hear the appeal, the financial sector, regulators, and consumers await a decision that could reshape industry practices and consumer protection standards. The case serves as a critical juncture in addressing transparency and fairness within the UK's financial services industry.