Court of Appeal rules for borrowers against Close Brothers and FirstRand Bank

The Court of Appeal ruled on 25 October 2024 in favour of three borrowers who had complained about potential car finance mis-selling by Close Brothers and FirstRand Bank¹. The court determined that it was unlawful for car finance companies not to inform customers of any commission earned, whether discretionary or a fixed percentage¹. The ruling meant agreements including non-discretionary commission could also be open to claims¹. Both companies appealed to the Supreme Court¹.

The decision sat within a longer sequence of events. The Financial Conduct Authority (FCA) banned discretionary commission arrangements (DCAs) in January 2021, having found they gave brokers and dealers an incentive to raise interest rates to earn higher commission; around 40% of car finance deals were believed to have had DCAs¹. In January 2024 the FCA launched an investigation into whether customers were overcharged between April 2007 and January 2021, and paused firms' handling of DCA complaints¹. That pause was extended in September 2024 until 4 December 2025, and in December 2024 was widened to cover all commission types, not just DCAs, from 26 October 2024¹.

The Supreme Court heard the appeal in April 2025 and published its ruling on 1 August 2025, overturning the Court of Appeal's decision¹. The panel of five judges sided with the lenders and found they were effectively not liable for hidden commission payments to dealers, saying there was no bribery in the purchase arrangements and that dealers had no legal obligation to act only in the customers' interest¹. Hidden commissions are therefore not automatically unlawful, and the FCA's compensation scheme focuses mainly on DCAs rather than all car finance deals¹.

On 30 March 2026 the FCA announced the full plan for its redress scheme, having changed it after feedback from consumers, firms and industry bodies during its 2025 consultation¹. The scope was reduced, with around 12.1m agreements expected to be eligible, down from 14.2m, while average compensation for older agreements rose and a minimum interest rate of 3% a year was added to payouts¹. The FCA says the average payout is likely to be around £829, and estimates the scheme could cost around £7.5bn if 75% of eligible customers claim¹.

Loans taken out between 6 April 2007 and 1 November 2024 are covered if the customer was not clearly told that the dealer or broker could set a higher interest rate to earn more commission; that the commission was at least 10% of the loan or 39% of the total cost of credit; or that the dealer worked with only one lender and did not look for other deals¹. The final point does not apply where there was a clear, visible link between lender and manufacturer, such as a similar name¹. Exceptions include commission of £120 or less for agreements beginning before 1 April 2014 and £150 or less from that date, cases where no discretionary commission was earned, and cases where no interest was charged¹. Claims for high-value loans, meaning amounts higher than 99.5% of other loans that year, are not covered, though those consumers can still complain to firms and the Financial Ombudsman Service¹.

Compensation has two parts for most people: a refund of the commission paid, and an amount for estimated loss of 17% of interest paid for cases from April 2014, or 21% for loans made before that¹. Interest is paid on compensation based on the annual average Bank of England base rate per year plus 1%, at a minimum of 3% in any year¹. The FCA has said compensation will not leave anyone better off than if they had been treated fairly, so some payments will be capped, with around one in three cases affected¹.

Why it matters for households

The ruling itself was overturned, so the practical route to money for borrowers is the FCA's redress scheme rather than the courts¹. Around 12.1m agreements are expected to be eligible, with an average payout of around £829¹. Anyone who has already complained to their lender does not need to do anything else for now, and lenders were set to contact eligible customers directly, usually by email or other digital channels, subject to fraud checks¹. The FCA has said consumers should still complain to their lender if they think they were affected, despite the legal challenges¹. Using a claims management company means giving up part of any payout, potentially as much as 30% of an award¹.

What happens next

The FCA confirmed on 3 December 2025 that the pause on firms handling motor finance complaints ends on 31 May 2026¹. On 1 May 2026 the FCA confirmed it had received legal challenges to its compensation scheme from Consumer Voice (a limited company), represented by Courmacs Legal Ltd, and three from lenders: Volkswagen Financial Services, Mercedes Benz Financial Services and Crédit Agricole Auto Finance¹. Under the current plan, the deadline to claim is 30 June 2026 for loans taken out from 1 April 2014, and 31 August 2027 for those not contacted during the contact period¹. Lenders have three months to tell customers whether they are owed money and how much, and six months after the preparation period ends to do so¹.