Motor Finance: untangling the Supreme Court’s decision & what we expect the repercussions to be

Today, the Supreme Court gave its long-awaited judgment on the controversial issue of secret commissions, finding that commission payments were not bribes and dealers do not owe fiduciary duties when arranging motor finance – but where very large commissions have been paid, that may create an unfair relationship under the Consumer Credit Act 1974. This judgment is likely to have wide-ranging repercussions across the finance industry.

We have been following these cases closely over the past twelve months, with our previous updates here and here. In this article, we outline the key aspects of the judgment and our expectations as to how this will impact the motor finance industry.

What is this case about?

Three separate individuals brought claims regarding finance agreements used to purchase cars. The Court of Appeal had previously found that automotive retailers had a fiduciary duty to inform consumers about commissions that they received from lenders in car finance agreements and that this information should not be buried in terms and conditions. 

The lenders appealed the Court of Appeal’s decision to the Supreme Court, with arguments being heard between 1 and 3 April 2025. The Supreme Court considered three broad issues:

1. Do retail dealers owe fiduciary duties to consumers?
2. What is the tort of bribery and does it exist in this case?
3. Do commission payments breach the Consumer Credit Act?

Do retail dealers owe fiduciary duties to consumers?

In the context of car finance agreements, a fiduciary duty refers to the obligation of retail dealers to act in solely the interests of consumers when arranging motor finance. 

In this case, the consumers argued that the dealers owed a fiduciary duty as consumers put trust and confidence in the dealers and the dealers had undertaken to provide impartial and ‘disinterested’ advice, which was undermined by the retail dealers receiving commission payments. In contrast, the lenders argued that there was no fiduciary duty as the retail dealers were simply acting in their own interests to sell cars and finance to consumers.

The Supreme Court decided, in this case, that the dealers did not owe a fiduciary duty to consumers when arranging motor finance. This was because the dealers were acting in their own commercial interest and did not agree with, or tell, consumers that they would set aside their own interest to arrange finance for the cars. In addition, the Supreme Court was persuaded by the fact that the arranging of finance was inextricably linked to the sale of the car, rather than being a separate transaction and that the dealers were not authorised by the customers to enter into a contract with the lenders for finance. These were all factors that were found to be incompatible with the obligation of single-minded loyalty which needs to be present for a fiduciary duty to exist.

What is the tort of bribery and does it exist in this case?

It is a legal principle that occurs when an agent secretly accepts a bribe from a third party. 

In this case, the consumers argued that the commissions paid by lenders to retail dealers were bribes, because those payments created a conflict of interest. In contrast, the lenders said that the commission payments were not bribes because the retail dealers did not owe a fiduciary duty (i.e. a special relationship of trust and confidence) to the consumers. 

The Supreme Court decided that a fiduciary duty was a necessary ingredient for a claim in bribery to succeed. For the reasons set out above, it was found that the dealers in this case did not owe a fiduciary duty and that was fatal to the consumers’ arguments that the commission payments paid by lenders to dealers were bribes. 

Do commission payments breach the Consumer Credit Act?

Under the Consumer Credit Act 1974, a credit agreement between a lender and a consumer may be an ‘unfair relationship’ if the terms of the agreement are unfair to consumers. In one of the three cases, brought by Mr Johnson against FirstRand, the Court of Appeal had found that the credit agreement was unfair in the context of the consumer having paid more than the car was worth and the lender having made a very high commission payment to the retail dealer.

The Supreme Court decided that the relationship between Mr Johnson and FirstRand was unfair and that the commission should be paid to Mr Johnson, with interest. The Supreme Court confirmed that the test of unfairness under section 140A of the Consumer Credit Act 1974 allowed the Court to take account of a very broad range of factors. 

Whilst unfairness will ultimately depend upon the specific facts of the case, the size of the commission payment – in Mr Johnson’s case, 25% of the advance credit and 55% of the total charge for credit – was a powerful indication of unfairness. In addition, FirstRand had a right of first refusal when offering finance to Mr Johnson but this was not disclosed to him, with Mr Johnson instead given the false impression that the dealer was offering products from a panel of lenders and offering the product which best met his requirements. Whilst the Supreme Court took into account Mr Johnson’s failure to read any documents provided to him by the dealer, it appeared to give limited weight to this as Mr Johnson was commercially unsophisticated.

Our expectations of how this decision will impact the industry

The next major step is for the Financial Conduct Authority (FCA) to confirm within six weeks of the Supreme Court’s judgment – by 12 September 2025 - if it is proposing a redress scheme for consumers and, if so, how that scheme will work and when it will be implemented. In light of the Supreme Court’s judgment, we expect a redress scheme will be implemented for customers who claim that their relationship with lenders was unfair.

The FCA has suggested that under a redress scheme, lenders would be responsible for deciding whether consumers had lost out because of their failings and, if they had, the lenders would need to follow rules for paying compensation to customers. Further information about the FCA’s considerations regarding a redress scheme can be found here. Until the FCA announces whether it will put in place a redress scheme, it is likely that claims against lenders will remain in limbo.

We are monitoring the FCA’s announcements and will provide an update when the FCA confirms whether it is implementing a redress scheme and, if so, how that scheme will work.

Working alongside Freeths, Steve Freeman, Partner and Head of Automotive & Transport at MHA, said: "I am delighted to see that the Supreme Court took the sensible decision and this is certainly a welcome relief to dealers and testimony to the work the NFDA put in to represent dealers."

If you are a retail dealership or motor finance lender and would benefit from a discussion about the possible ramifications of this case, please get in touch.