August 15, 2025
Sara Davies
Articles
The consequences of the Supreme Court’s recent motor finance case judgement could affect fleets, having only partially overturned the previous Court of Appeal decision which found against the finance companies. The Supreme Court’s judgement on car loan commission was announced on Friday 1st August, putting an end to months of uncertainty.
The Supreme Court originally heard the case in April 2025 when car finance firms Close Brothers and Motonovo appealed against the surprise Court of Appeal ruling, made in October 2024, that all car finance agreements with hidden commission were unlawful, shocking the regulator, lenders and politicians alike. By ruling car finance agreements that didn’t tell consumers all details of commission, including the amount, were unlawful, widespread panic ensued.
The Court of Appeal at the time upheld claims by three customers against two lenders on three grounds:
(i) assisting a breach of fiduciary duty by the dealers
(ii) bribing the dealers
(iii) an unfair relationship (in one case)
The Supreme Court’s Judgement on 1st August upheld the appeals on breach of fiduciary duty and bribery, finding in favour of the lenders and dismissed the appeal on an unfair relationship, finding in favour of the claimant (Johnson).
The Financial Conduct Authority (FCA) is consulting on a motor finance compensation scheme for affected consumers as part of a consultation due to launch by early October, which is predicted may add up to a total cost of between £9 billion and £18 billion in compensation, with the first payments anticipated in 2026. This has the potential of causing a knock-on effect regarding the availability and cost of finance to fleets as well as an impact on residual values if it becomes more difficult for used car buyers to access finance.
Are funders and brokers affected?
Funders and brokers will need to assess the extent to which their relationships may give rise to fiduciary duties to customers in the specific context of their own business models and whether they may also be susceptible to claims of unfair relationships to the extent applicable to their agreements, taking into account a complex variety of factors.
The burden is on the lender to show that the relationship is not unfair in terms of factors including the nature and size of the commission relative to the charge for credit (in the Johnson case this amounted to 55% of the total charge for credit), the characteristics of the consumer (Johnson was described in court as “commercially unsophisticated”) and the extent and manner of the disclosure (which though mentioned in the paperwork was not disclosed to the customer orally in Johnson’s case. He did not feel he could take time to read the documents in which reference was made, nor was the reference displayed prominently enough with the customer’s attention expressly drawn to it).
In Johnson’s case, there was a tie between the lender and the dealer and this was not disclosed. The claimant was given the false impression in the documentation that the dealer was offering products from a listed panel of lenders when in reality there was an agreement between the lender and the dealer that the dealer would introduce applicants to the lender and would not refer them to any other lender unless the lender declined.
In addition, funders and brokers will need to consider whether they have complied with regulatory requirements in the FCA Handbook regarding the disclosure of commission (set out in CONC). Importantly, while the Supreme Court decision in relation to unfair relationships is confined to ‘credit agreements’ within scope of s.140A CCA, the Supreme Court considered compliance with regulatory requirements to be one of the relevant factors and concluded that there had been a breach of CONC 4.5.3R, which has broader implications for firms within the consumer hire market.
By examining the principles dictated in the judgment, funders and brokers should assess them against their own contractual arrangements, control frameworks and risk tolerances. A comprehensive understanding of the intricacies of this case should assist businesses operating in this arena in devising compliant ways to structure and disclose their commission arrangements moving forward.
What’s at the heart of the row?
In 2021, the Financial Conduct Authority (FCA) banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs). The FCA said they provided an incentive for a dealer to charge a buyer a higher-than-necessary interest rate.
While those initial investigations only surrounded DCAs, the Court of Appeal then, crucially, widened the scope to any car finance commissions. The three judges unanimously agreed that it would be illegal for the lender to pay any commission to the dealer without the informed consent of the buyer and that customers should be clearly told how much commission would be paid, and agree to it, without those details being buried in the finance terms and conditions. They declared the duty of care in car finance transactions akin to that of a fiduciary relationship where the amount of commission must be clearly stated with informed consent obtained.
The Supreme Court appeal centred on several key issues, including whether the motor finance dealers owed disinterested or fiduciary duties to their customers, whether any such duties were breached, and if lenders were liable for compensation as accessories to that breach. It also challenged whether an unfair relationship arose from insufficient disclosure of commissions, as found by the Court of Appeal.
How exactly did the commission disclosure scandal begin?
The commission disclosure litigation began with individual car finance complaints regarding the DCAs. These complaints, initially rejected by firms, were later supported by key decisions from the Financial Ombudsman Service (FOS), which found in favour of complainants.
The Financial Conduct Authority (FCA) then launched an investigation into potential overcharging and broader commission disclosure issues. This investigation, alongside test cases like Johnson v Firstrand Bank and Hopcraft v Close Brothers, led to the Court of Appeal’s ruling on the matter and ultimately the recent Supreme Court ruling.
What now?
Brokers and lenders are advised to closely review the FCA’s upcoming consultation paper on the scope of the redress scheme to understand if it will also take account of breaches of regulatory requirements (outside of the two heads of claim).
Enjoyed this article? Read more of our latest blogs below:
- Three New Appointed Representatives Onboarded in July
- How much Money Can Driving an EV Save?
- Goodbye Q2 What have We Learned?
- Going Places! Company Car in Action
For all our latest news and blogs click HERE.
Or are you looking to understand the company car, fleet management or any other aspect of fleet vehicles? If so, then check out our Guide Pages.