Millions of motorists are set to miss out on car finance payouts following a Supreme Court ruling on Friday. The judgment, which was handed down after financial markets closed on August 1, overturned a ruling by the Court of Appeal in October last year that said hidden commissions paid to car dealers by lenders were unlawful.

The court sided with one claimant, Marcus Johnson, and awarded him individual compensation due to the circumstances in his case. The cases brought by two other consumers, alleging that commissions paid to car dealers were bribes and that dealers owed a duty of loyalty to customers, were rejected. The Supreme Court overturned the previous ruling by the lower court arguing that customers had a case. This means banks and lenders were spared a massive bill.

The Court of Appeal ruling, based on test cases, said making “secret” commission payments to brokers who arrange car loans without disclosing the sum and terms to borrowers was unlawful.

The lenders involved in the case, FirstRand Bank and Close Brothers, appealed against that decision to the Supreme Court. Analysts at HSBC said last year the controversy could be estimated to cost up to £44billion.

The Financial Conduct Authority (FCA) also intervened in the case, telling the Supreme Court that the Court of Appeal ruling “goes too far”. Three motorists – Amy Hopcraft, Mr Johnson and Andrew Wrench – opposed the challenge.

Chancellor Rachel Reeves reportedly feared a ruling against the banks would reflect badly on Britain as a place to do business, reports have suggested.

Yet, the door may still be open to a more limited compensation scheme that’s being considered by the Financial Conduct Authority – which previously said it will launch a scheme within six weeks of the Supreme Court judgement.

Giving a summary of the ruling, Lord Rees said: “For the reasons set out in detail in a judgment published today, the Supreme Court allows the appeals brought by the finance companies.”

He continued: “However, we uphold Mr Johnson’s claim that the relationship between him and the finance company was unfair, and we allow the appeal in his case only because the Court of Appeal made a number of mistakes in reaching its decision.

“Retaking the decision on a proper basis, we award him the amount of a commission plus interest. The other customers’ claims are rejected.”

The car finance sector is the second-biggest lender to consumers in the UK, with people only borrowing more in mortgages.

The majority of new cars, and many second-hand ones, are bought with finance agreements.

Motorists pay a deposit, borrow the rest as a loan and drive off in their new vehicle.

Dealers were signing up customers to these finance deals and, behind the scenes, were paid a commission by lenders.

Some dealers were paid more in commission if they secured a higher interest rate on the loan. These were known as discretionary commission arrangements (DCAs) and were banned by regulators in 2021.