The UK Supreme Court is poised to hear a pivotal appeal concerning undisclosed commission payments in car finance agreements, a case that could lead to compensation claims amounting to billions of pounds and significantly impact the motor finance industry.

In October 2024, the UK Court of Appeal ruled that it was unlawful for car dealers to receive commissions from lenders without the informed consent of consumers. This decision, stemming from cases involving FirstRand Bank and Close Brothers, has opened the door to potential compensation claims that could reach up to £30 billion, according to estimates by Moody's.

Following the Court of Appeal's ruling, both Close Brothers and FirstRand Bank sought permission to appeal to the Supreme Court, which was granted in December 2024. The Supreme Court has scheduled the hearing for the Hilary Term of 2025, with a decision anticipated by the summer or autumn of the same year.

The Financial Conduct Authority (FCA) has been actively involved in addressing the implications of the court rulings. In December 2024, the FCA extended the deadline for consumers to file complaints about commission payments related to historic motor finance and leasing deals to December 2025. This extension aims to ensure fairness and provide firms with adequate time to handle the anticipated high volume of complaints. The FCA stated, "We have extended the time firms have to handle complaints to help prevent disorderly, inconsistent and inefficient outcomes for consumers and firms."

In response to the potential financial impact, several banks have set aside substantial funds to cover possible claims. Close Brothers, for instance, announced in February 2025 that it expects to allocate £165 million for costs related to the probe and court ruling concerning the potential mis-selling of car finance loans. This provision includes legal costs and potential customer compensation.

The UK government has also expressed concern over the potential economic ramifications of the case. In January 2025, Chancellor Rachel Reeves attempted to intervene in the Supreme Court case, citing worries that the ruling could lead to significant economic damage and affect the affordability and availability of motor finance for consumers. However, the Supreme Court rejected this intervention, maintaining the focus on the legal aspects of the case.

The outcome of the Supreme Court's decision is expected to have profound implications for the banking sector, potentially leading to substantial compensation payouts and influencing future consolidation within the industry. The ruling underscores the importance of transparency in financial agreements and may lead to increased scrutiny of commission-based sales practices across various sectors.

As the Supreme Court prepares to hear the appeal, all eyes are on the potential ripple effects this case may have on the motor finance industry and the broader financial sector. The decision will be pivotal in determining the future landscape of car finance agreements and the responsibilities of lenders and dealers in ensuring consumer transparency.