Could you be entitled to a payout after court ruling on car finance? |

How did we get here?

In January, the FCA launched an investigation into discretionary commission arrangements (DCAs) on car loans issued between 2007 and 2021.

The practice meant car dealerships and brokers had the power to set interest rates on car loans, and earn higher commission along the way. DCAs were eventually banned by the FCA in 2021 because of concerns they were incentivising dealers to charge higher interest rates.

The City regulator’s investigation could ultimately lead to a multibillion-pound compensation scheme funded by the lenders that sat behind the arrangements. The FCA has already warned car lenders to hold back cash for potential payouts, which some analysts believe could add up to £8bn-£13bn.

The watchdog had been due to issue its decision in September, but pushed its deadline to the end of May 2025 after lenders struggled to provide all the data in time. But that delay also gave it time to judge the outcome of a test case against specialist lenders Close Brothers and FirstRand Bank.

What happened last week?

On Friday, the court of appeal ruled on that test case, upholding a decision that it was unlawful for the two lenders to have paid a “secret” commission to car dealers without borrowers’ knowledge.

Judges said consumers needed to know all the material facts that could affect their borrowing decision, including the total commission to car dealers and how it was calculated, in order to be able to consent to the loan.

Some lawyers have speculated that customers could collectively receive billions of pounds in compensation as a result and in some cases have their car loan written off or rescinded.

It could also spark complaints and payouts about other types of commission payments related to motor finance and potentially other loans and financial products.

The FCA has said it was carefully considering the court of appeal decision, which both Close Brothers and FirstRand plan to challenge in the supreme court.

How have UK lenders reacted?

They have been racing to determine what it means for their businesses and how much they may have to pay out. Some say it sets a much higher bar for disclosing commission arrangements, and securing customers’ consent, than they previously thought necessary under FCA rules.

Close Brothers – which had already cancelled its dividend and launched plans to strengthen its balance sheet by £400m in response to the FCA investigation – has halted new car loans since the ruling, which has sent its shares plunging by 37% since Friday.

Santander UK delayed the release of its third-quarter results on Tuesday at the last minute, while Lloyds Banking Group, which is the most exposed among high…