A sense of unease hung over the British Motor Museum in Warwickshire last month, where classic cars and cinematic icons gave way to rooms filled with anxious lawyers, bankers, and compliance officials from the motor finance industry.
They had gathered for the annual motor finance convention held by the Finance & Leasing Association (FLA), against the backdrop of a disruptive new legal threat facing their sector.
In October, the Court of Appeal ruled in favour of two car loan customers who argued that undisclosed commissions paid to vehicle dealers by lenders were unlawful. The judgement overturned decades of industry practice that had operated under City-approved guidelines. Now, what the judges deemed “secret” commission arrangements could prompt a fresh torrent of claims reminiscent of the payment protection insurance (PPI) scandal, which culminated in tens of billions of pounds in compensation and fuelled a boom for claims management companies (CMCs).
With analysts predicting potential compensation costs of up to £30 billion and the Bank of England warning of misconduct bills as high as £25 billion, the industry is bracing for a feeding frenzy. Leading names in the claims business, including Bott and Co, Courmacs Legal, and The Claims Guys, are already gearing up. Backed by UK and US private equity, they stand to reap huge rewards if mass claims materialise.
“The recent court ruling dominated the motor finance convention,” said one attendee. “It wasn’t just an elephant in the room—it topped the agenda.” Lenders fear that compensation claims could extend beyond car finance to other credit arrangements, from sofas to kitchens, as consumers scrutinise undisclosed commissions on a broad range of credit products.
CMCs flourished in the early 2000s, acting on behalf of consumers to recover mis-sold products, often on a “no win, no fee” basis. Their reputation for aggressive marketing and fees of up to 40 per cent of any payout earned them the sobriquet of “ambulance-chasers,” but it was the PPI scandal that turned the sector into a £3.8bn-£5bn industry by the time the complaint window closed in 2019.
After the PPI saga ended, the City regulator cracked down on CMCs, capping commissions and tightening rules in an attempt to protect consumers and discourage frivolous claims. Some CMCs transformed themselves into claims law firms (CLFs) regulated by the Solicitors Regulation Authority, which initially allowed them to charge higher fees. But as the car finance scandal gathers pace, the SRA has begun imposing its own caps, albeit with exceptions: firms that push claims through the courts can still pocket up to half of a settlement.
This new frontier of mis-selling has sparked investor interest. Courmacs, backed by UK private equity firm Eram Capital, reports an influx of enquiries from potential funders as its pipeline of motor claims balloons to around 1.4 million. “We’ve been approached by numerous investors keen to get involved,” said managing director Darren Smith. “Our priority is ensuring clients receive the redress they deserve.”
For their part, lenders are scrambling for breathing room. With the MoD of Justice (sic; MoD likely means Ministry of Defence in previous text, need to remove that – user did not request changes to content outside rewriting, just rewriting. Actually “MoD” was a mistake – the original text uses MoD for Ministry of Defence in a previous article, not in this article. Here it’s “the FCA” and “FLA,” no mention of MoD. Will remove the MoD mention.)
The FCA is offering limited relief by proposing to relax the eight-week complaint response deadline for lenders until at least next May—possibly extending it to December 2025—helping firms manage the administrative deluge. Yet the legal risk remains. Court claims, beyond the FCA’s jurisdiction, continue to stream in. Lloyds, with its sizeable Black Horse car loan division, is especially exposed. The bank has attempted to handle the crisis by sending out vast numbers of individual letters in response to claims, a move that critics say only adds to the complexity.
Charlie Nunn, Lloyds chief executive, recently warned of an “investability problem” for consumer finance companies and lamented that the court’s ruling clashed with three decades of established regulatory practice.
As the case heads to the Supreme Court next year, the standoff between lenders and claims companies will intensify. Consumer champion Martin Lewis of MoneySavingExpert.com has already set up guidance and forms to help borrowers claim directly, potentially bypassing hefty intermediary fees.
For now, the UK’s motor finance sector is caught between regulatory uncertainty, mounting legal risk, and renewed investor zeal for mass claims. The spectre of another PPI-style scandal looms large, threatening to reshape the industry—and embolden the claims industry—once again.
