Supreme Court ruling protects lenders from car finance commission liabilities

In the United Kingdom, a significant Supreme Court judgment was delivered on August 1, 2025, concerning the motor finance industry. This ruling determined that lenders, specifically Lloyds Banking Group and Close Brothers, are not liable for undisclosed commission payments that car dealers received from them as part of finance agreements for motor vehicles. The ruling emerged after a case that scrutinized the relationships car dealers maintained with their customers and whether those relationships required the dealers to prioritize customer interests above their profits. The judgment came after the market closed, leading to a remarkable increase in stock prices for Lloyds and Close Brothers. Lloyds shares observed a rise of nearly 8%, while Close Brothers shares surged by as much as 34% at one point in trading. The Supreme Court's decision had substantial implications for the lenders involved in the case, especially since they had already set aside significant provisions for potential compensation claims regarding commission arrangements. Close Brothers, which faced a considerable half-year loss as a result of putting aside £165 million for potential legal costs connected to the commission issues, welcomed the ruling. Despite the positive reaction to the ruling, there remains uncertainty regarding the implications of potential redress claims for significant commissions deemed unfair or unlawful. The Financial Conduct Authority (FCA) announced on August 3, 2025, that it would consult on the possibility of establishing an industry-wide compensation scheme. This consultation could mean that millions of drivers may be entitled to a share of up to £18 billion. However, it is expected that individual payouts will generally be less than £950 each. The ruling could limit the compensation that lenders might have to pay although it left open a possibility for claims associated with substantial commissions. Close Brothers expressed optimism about engaging with the FCA during this consultation, acknowledging the ongoing uncertainties surrounding financial impacts. Lloyds, with its exposure to motor finance through its Black Horse segment, indicated that it believes any changes in provisions for compensation would likely not be materially impactful to the group, considering they have reserved £1.2 billion for this purpose. The bank noted that they would continue to reassess their provisions in light of the ruling and any subsequent FCA recommendations. Financial analysts and investors will be monitoring how the finance sector adapts to these developments and what this ruling ultimately means for consumer protection in car finance agreements moving forward.