Supreme Court Decision on Car Finance Commissions Looms: Industry Braces for Potential Upheaval
Historic Court Case Pits Transparency Against Industry Norms
A legal showdown with potentially seismic consequences for the UK’s car finance industry has concluded at the Supreme Court, with a judgment not expected until July. A closely watched case will determine whether car dealers breached a fiduciary duty when they failed to disclose commission payments when they arranged finance deals for customers.
In the Appeal, Close Brothers and FirstRand Bank (MotoNovo Finance) are challenging a Court of Appeal decision in October 2024 that dealers are owed such a duty and may have acted unlawfully in withholding financial incentives from customers. The case affects millions of agreements made between 2007 and 2021 and could result in billions of pounds in compensation claims.
Fiduciary Duty: The Focus Keyword Driving the Case
The dispute centres around the concept of fiduciary duty. In that capacity car dealers acted as credit brokers and were therefore liable to their customers for commissions, the Court of Appeal held. And lawyers representing lenders say that dealers are like sales staff or sommeliers who are not supposed to act for the customer alone.
FirstRand's Mark Howard KC called the fiduciary duty argument "nonsense" and said dealers never intended to put their financial interests above the buyer's. Instead he argued the legal ceiling for fiduciary responsibility was wrongly extended, which could disrupt business practices.
Dealers acted arbitrarily by giving claimants only one finance option from a pool of lenders. In response, Robert Weir KC for the claimants said that breach of impartiality warranted the fiduciary designation and created the tort of bribery.
FCA and Industry Reactions
The Financial Conduct Authority (FCA) has been cautious but said the Court of Appeal may have gone too far in its protection of consumers, but warned the Supreme Court not to undermine established legal doctrines or disrupt the wider financial services market.
Motor finance companies have already started putting money aside. In anticipation of compensation payouts, Lloyds Banking Group has set aside £1.2 billion. Similar provisions have been made by Close Brothers and MotoNovo in light of the financial tsunami that could sweep the sector.
Consumer Perspective: Transparency and Redress
Consumer advocates, including Consumer Voice, have asked the Supreme Court to uphold the Court of Appeal decision. Consumers need clarity and fairness - especially when so many did not know that the finance deals were influenced by secret commissions, co-founder Alex Neill said.
Consumer Voice research found that 63% of car buyers think their dealer will find them the best deal but only 21% knew about commissions. It also said 56% of customers had just one finance option - which may have stopped them getting better rates.
Neill argued that consumers were “particularly vulnerable” in the car finance space, often accepting finance terms without understanding the financial incentives motivating their dealers.
What Happens Next?
Lord Reed, President of the Supreme Court, confirmed no ruling would be issued before July. Once the decision is handed down, the FCA will have six weeks to respond. If the Court upholds the earlier ruling, a compensation scheme is likely to follow, potentially by early 2026.
The implications might be similar to the Payment Protection Insurance (PPI) scandal that paid out more than £38 billion. In this case though, industry stakeholders say lenders could be liable for up to £44 billion - one of the biggest legal and financial reckonings in modern UK history.
Conclusion
The Supreme Court's ruling will decide whether lenders and dealers owe consumers a fiduciary or disinterested duty and whether widespread practice in the UK motor finance market was legally and ethically acceptable. With billions at stake, the court may rewrite consumer protection and transparency standards for financial services.