Lenders have avoided potentially having to pay compensation to millions of drivers after the Supreme Court ruled they are not liable for hidden commission payments in car finance schemes.

Two lenders, FirstRand Bank and Close Brothers, went to the UK’s highest court to challenge a Court of Appeal ruling which found “secret” commission payments paid by buyers to car dealers as part of finance arrangements made before 2021 without the motorist’s fully informed consent were unlawful.

The ruling in October last year found three motorists, who all bought their cars before 2021, should receive compensation after they were not told either clearly enough or at all that the car dealers, acting as credit brokers, would receive a commission from the lenders for introducing business to them.

But in a decision on Friday, justices at the UK’s highest court overturned the Court of Appeal, though some customers could still receive payouts by bringing claims under the Consumer Credit Act (CCA).

Lawyers for the lenders told the Supreme Court at a three-day hearing in April the decision was an “egregious error”, while the Financial Conduct Authority intervened in the case and claimed the ruling “goes too far”.

The three drivers, Marcus Johnson, Andrew Wrench and Amy Hopcraft, opposed the challenge.

Giving a summary of the Supreme Court’s ruling on Friday, Lord Reed, one of five justices who heard the case, said they had allowed the lenders’ appeals.

He said: “Each party to the three-cornered arrangement – the customer, the dealer and the finance company – was engaged at arm’s length from the other participants in the pursuit of their own objectives.”

However, the judges upheld a claim brought by Mr Johnson under the CCA that his relationship with the finance company had been “unfair”, awarding him the commission amount of £1,650.95 plus interest.

In their full 110-page judgment, Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen said that car dealers did not have a relationship with their customers that would require them to act only in the customers’ interest.

They said: “An offer to find the best deal is not the same as an offer to act altruistically.”

The FCA previously said it would set out within six weeks whether it would consult on a redress scheme.

But a spokesperson said following the ruling that it would confirm whether it will consult on any such scheme by 8am on Monday “to provide clarity as quickly as possible”.

They said: “We want to bring greater certainty for consumers, firms and investors as quickly as possible.”

Following the ruling, a Treasury spokesperson said: “We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers.