Showroom Secrets
Lana Wilks
A series of cases around the motor finance provided by dealers have recently been heard. Here Lana Wilks of our Commercial Litigation department drives into the details.
The Supreme Court recently heard a trio of landmark cases - Wrench v FirstRand Bank (UKSC 2024/0159), Johnson v FirstRand Bank (UKSC 2024/0158), and Hopcraft and another v Close Brothers (UKSC 2024/0157) - that have ignited debate over the regulation of motor finance in the UK. There are two forms of car finance under scrutiny: Discretionary Commission Agreements and Commission Disclosure Complaints.
At the heart of these cases are pivotal questions about the duties owed by car dealers to consumers when arranging hire purchase agreements. Specifically, the Supreme Court is considering:
- Whether car dealers, acting as brokers, owe consumers a “disinterested” and/or fiduciary duty to provide information, advice, or recommendations.
- If such a duty exists, whether undisclosed commission payments from lenders to dealers render the lenders primary wrongdoers.
- Whether lenders can be liable in the tort of bribery, and if so, what the appropriate remedies should be.
These issues arise in the context of consumers entering into hire purchase agreements for vehicles, with car dealers brokering the deals. The trio of claimants challenge the practice of presenting only a single finance option without clear, written disclosure that the dealer is receiving a commission from the lender.
While the facts varied between the cases, all claimants argued that the dealerships, as brokers, owed them a duty to provide impartial information, advice, or recommendations. Some of the arguments made out were that the interest amounts charged on car finance details under discretionary commission agreements, were overinflated, purely for the purpose of generating a larger commission for the dealership’s brokers. This was evidently not disclosed, and central to the heart of these claims.
The litigation of all three cases has differing procedural history in the first instance but all were granted permission to appeal. The Court of Appeal joined the cases together and ruled in favour of the claimants, holding that the Financial Ombudsman Service (FOS) was entitled to find that the commission arrangements were not adequately disclosed, rendering the relationship ‘unfair’ under section 140 of the Consumer Credit Act 1974.
The Court of Appeal further held that brokers cannot lawfully receive commission payments from lenders without the customer’s fully informed consent.
The lenders have now appealed to the Supreme Court, which heard the cases in the first week of April 2025. A judgment is expected in early summer and is likely to have far-reaching implications for the motor finance industry, consumer protection, and the regulation of commission-based sales. Once the Supreme Court delivers its judgment, the motor finance industry may face a rush to achieve compliance and mitigate the risk of litigation from new consumers.
Many consumers may wonder how a successful claim would translate into compensation. The Financial Conduct Authority (FCA) has indicated that, following the Supreme Court’s decision, it will set out their own response, relying on the judgment to be handed down. If the Supreme Court upholds the Court of Appeal’s decision, it is likely that the FCA will set up a framework for refunds and redress. This would provide a clear process for affected consumers to claim compensation, with the Supreme Court’s ruling serving as the legal foundation for such claims.
Industry estimates suggest that the total payout could exceed £10 billion. The Supreme Court may also require lenders to proactively contact customers who are entitled to compensation, which would create a significant administrative burden for both lenders and dealers.
