Car Finance Ruling

The Supreme Court delivered its highly anticipated judgment in the so-called “car finance claims” cases on 1 August. Lana Wilks from our Commercial Litigation team takes a look at what it means for motor dealers and consumers.

The judgment followed hearings on 1, 2, and 3 April 2025. The appeals considered were:

• Hopcraft and another v Close Brothers Limited
• Johnson v FirstRand Bank Limited t/a MotoNovo Finance
• Wrench v FirstRand Bank Limited t/a MotoNovo Finance

Background

The cases were previously heard in the Court of Appeal, which held that car dealers could not lawfully receive a commission from a finance company unless the customer had given fully informed consent. This decision generated significant controversy and speculation regarding potential new disclosure requirements. The matter was subsequently appealed to the Supreme Court.

The central issue before the Supreme Court was the legality of undisclosed or partially undisclosed commissions paid by lenders to motor dealers in car finance transactions, specifically whether a fiduciary duty was owed by the dealer to the consumer. The claims were advanced on the basis of:

• Alleged fiduciary duties
• Dishonest assistance
• Bribery
• Unfair relationships under section 140A of the Consumer Credit Act 1974

Supreme Court Judgment - Key Findings

1. Fiduciary Duty
   • The Supreme Court held that motor dealers arranging finance are not subject to a fiduciary duty to their customers. Dealers act in their own commercial interests and are not to be regarded as fiduciaries (trustees) in this context.
   • As a result, claims in equity and for bribery against lenders based on an alleged fiduciary relationship could not succeed.
2. Unfair Relationship (Consumer Credit Act 1974, s140A)
   • The Court found that, in the case of Mr Johnson v FirstRand Bank Limited, the relationship between the lender and the consumer was unfair under section 140A of the Consumer Credit Act 1974.
   • The unfairness arose due to the size of the commission, the failure to disclose the commission, and the concealment of the commercial relationship between the dealer and the lender.
   • The Court emphasised that non-disclosure of a high commission (in this case, 55 per cent of the total cost of credit) was a “powerful indication” of an unfair relationship.

Implications

For Consumers

• The finding that no fiduciary duty is owed means that large-scale compensation on this basis is unlikely.
• However, consumers may still have claims under the unfair relationship provisions of the Consumer Credit Act 1974, particularly where there has been non-disclosure of significant commissions.

For the Motor Finance Industry

• Dealers and lenders must ensure transparency regarding commissions, particularly where the commission is substantial relative to the cost of credit.
• The judgment is likely to result in clearer disclosure of commission arrangements in finance documentation.

FCA Response and Prospective Redress Scheme

The Financial Conduct Authority (FCA) has indicated it will consult on an industry-wide redress scheme for motor finance customers who were treated unfairly.

The FCA has outlined principles for any redress scheme to be; comprehensiveness, fairness, certainty, simplicity and cost-effectiveness, timeliness, transparency, market integrity. Remedies are likely to include repayment of undisclosed commissions, with interest at a commercial rate (proposed as the average base rate plus one per cent, approximately three per cent per annum). The scheme is expected to cover agreements dating back to 2007, aligning with the Financial Ombudsman’s jurisdiction.

Key Factors Indicating Unfairness

The Supreme Court and FCA have identified several factors that may indicate an unfair relationship under the Consumer Credit Act 1974:

• The size of the commission relative to the total charge for credit
• The nature of the commission (e.g., whether it is discretionary)
• The characteristics of the consumer
• Compliance with regulatory rules
• The extent and manner of disclosure

Next Steps

• The FCA will consult on the details of the redress scheme, including the applicable interest rate and the scope of eligible agreements.
• Further guidance is expected regarding what level of commission, if undisclosed, may render a relationship unfair.
• The industry should prepare for enhanced disclosure requirements and potential retrospective claims.

Conclusion

The Supreme Court’s decision provides important clarity on the legal duties of motor dealers and lenders in car finance transactions. While the absence of a fiduciary duty limits the scope for certain claims, the judgment underscores the importance of transparency and fair dealing, particularly in relation to commission disclosure. The forthcoming FCA redress scheme will be of significant interest to both consumers and industry participants.