Andrew Foyle

On 1 August 2025, the Supreme Court issued its judgment in the motor finance commissions cases. Weeks down the line, lenders, dealers and consumers alike fervently await the Financial Conduct Authority (FCA) offering a clear roadmap for how future motor finance relationships are conducted. 

This is a pressing issue. According to the Finance & Leasing Association (FLA), over 80% of new cars are purchased on finance. In 2024, FLA members wrote £155 billion of new finance to customers across the consumer and commercial sectors. A sizeable proportion of that finance would have been written by brokers on commission.

Ramifications of the Appeal and Supreme Court judgment

Let’s briefly return to the Supreme Court judgment and recap why the motor finance industry has found itself in the headlights. In October 2024 the English Court of Appeal ruled on three cases involving commissions paid to dealers when they set up finance for their customers. It ruled that where a dealer sells you a car on finance, they have a fiduciary duty towards you, and that failing to disclose that the dealer was being paid commission for the sale of the finance was a breach of that duty.  The court further ruled that the payment of commission to the dealer, leading them to breach their duties, amounted to bribery.  

Finally, in one of the three cases before the Appeal Court, it ruled that the commission paid to the dealer created an unfair relationship between customer and lender. In relation to that case, this allowed the court to exercise redress in terms of the Consumer Credit Act 1974. An appeal was taken to the Supreme Court.

These findings were hugely significant and it’s unsurprising that the motor finance world – and the wider finance industry - held their breath on 1 August.  For the creation of fiduciary duties and application of the law relating to bribery would potentially have had ramifications far beyond the world of motor finance.

Ultimately, the Supreme Court overruled the Court of Appeal, on both the existence of a fiduciary duty and on the point relating to bribery.  In the one case raising the issue of an unfair relationship, the court upheld that claim. However, the judgment clarified that all such cases are fact sensitive. In this case, the size of the commission (55% of the total charge for credit), potentially misleading documentation and a naïve, non-commercial consumer were significant factors. 

Has the industry changed gear?

The judgment was, largely, a huge victory for the industry. However, industry insiders could be forgiven for thinking little has progressed since the Supreme Court’s ruling.  After all, listen to commercial radio and between the power ballads advertisements promise “thousands of pounds in compensation” to those consumers affected by motor finance commissions.  Indeed, Claims Management Companies (CMCs), far from retreating, appear to be bullish. I suspect future litigation will focus sharply on the “unfair relationship” point, the only successful issue before the Supreme Court.

Consequently, there is much for the FCA to consider. Within 24 hours of the Supreme Court judgment, the finance body made the decision to move forward with a mass redress scheme. This consultation, focused on the parameters of that scheme, is expected in October. As the FCA stated: “it is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated”.

However, industry insiders were taken aback when the FCA expressed the view that the redress scheme should cover agreements dating back to 2007.  Such a move would create some very serious challenges. For example, by the time the redress scheme is activated, some of the motor finance agreements would be almost two decades old. Any supporting documentation to contest / support a consumer claim for redress is unlikely to be available. Unsurprisingly, many in the industry have called into question the fairness of penalising firms for practices (discretionary commission arrangements) that were legal until 2021. Of course, this latter argument is unlikely to elicit much sympathy – for there is a reason discretionary commission arrangements were banned!

Moreover, shortly after the FCA announced plans for a consultation, the Solicitors Regulatory Authority (SRA) set out its own expectations of SRA-regulated firms in dealing with claims of this nature on behalf of consumers.  This included informing consumers that a redress scheme is likely to be introduced as an alternative to litigation, advising any prospective client that they can pursue a claim themselves (free of charge) and being very clear with clients on what their services will cost (including any charges on termination of the agreement).

Steering towards consumer redress

Motor finance firms may have felt elated on 1 August, but the simple truth is that industry has now entered a temporary impasse until the FCA publish their consultation. Certainly, the Supreme Court judgment has already greatly narrowed the scope of claims. However, any redress scheme is unlikely to be cheap. Large provisions are already being made by most lenders in the motor finance space in anticipation of payouts which the FCA estimates at around £9bn to £18bn.

Let us also not forget the dealers.  In some cases, the dealers’ agreements with finance companies included indemnity provisions.  If dealers are shown to have misled consumers and/or breached their contracts with the lender, lenders might be looking to them to absorb some of the pain.

Finally, there is the courts. Taking everything into consideration, we are likely to see fewer claims as the redress scheme kicks in and creates a more cost-effective means of obtaining redress for consumers.  

I anticipate that any case reaching the courts will be much more fact specific, and focused on the fairness or otherwise of the relationship between lender and customer. That in turn will create significant difficulties for CMCs that rely upon bulk processes, with limited scope to handcraft an argument on a case-by-case basis. 

Therefore, while industry engines idle in anticipation of the FCA consultation, I believe it won’t be too long before scrutiny of the proposed redress scheme once again supercharges the debate. 

Andrew Foyle is a partner and leads the dispute resolution and litigation teams at Shoosmiths in Scotland and Northern Ireland