Supreme Court grants appeal in car finance commission case, expedited hearing set

The Supreme Court has granted permission for two car lenders to appeal a landmark ruling on motor finance commission payments that has raised concerns over a potential huge compensation bill.

Close Brothers and FirstRand, the owner of MotoNovo, now have an opportunity to challenge an October 25 Court of Appeal ruling that deemed paying undisclosed "secret" commissions to car dealers - without informing borrowers of the amount or terms - unlawful.

The Court of Appeal’s decision based on common law cut across existing City regulations and Financial Conduct Authority's (FCA) ongoing investigation into discretionary commission arrangements, opening the door to a surge of claims with ratings agency Moody’s estimating these claims could cost the industry up to £30 billion.

Read FCA boss goes on national TV to address car finance crisis

The Supreme Court has not yet scheduled the hearing but indicated it would take place by the end of the next legal term, 16 April 2025, potentially leading to a decision by summer or autumn of that year. This “fast-track” schedule follows a plea from the FCA for an expedited hearing to resolve market uncertainties.

The FCA stated, “We previously wrote to the Supreme Court asking it to decide quickly whether it will give permission to appeal and, if it does, to determine the substantive appeal as soon as possible. This is because of the potential impact of any judgment on the motor finance market and the many consumers who rely on it. We are considering whether to formally intervene in the case to share our expertise to assist the court on the substantive appeal.”

Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), representing car and commercial retailers across the UK commented: "The automotive sector plays a vital part in the UK economy and the uncertainty caused by recent findings threatened to undermine the whole vehicle sales and lending infrastructure. The Supreme Court ruling will be very welcome news for our members and a very positive step in the right direction for our industry.”

Finance industry association the Financing and Leasing Association welcomed the Supreme Court’s decision. Adrian Dally, its director of motor finance, commented, “Permission to appeal is very good news indeed. The expedited process will give the motor finance sector the certainty it needs.”

Speaking at the Vehicle Remarketing Association’s Automotive Summit, Jon Butler, legal counsel for the VRA from the law firm Geldards, provided an in-depth analysis of the implications of the October DCA judgment, describing the decision as “seismic,” in terms of its extensive impact on the motor finance sector.

Butler explained that the judgment has far-reaching consequences for all intermediary and broker-led business products, whether business-to-consumer (B2C) or business-to-business (B2B).

Read Car loan crisis could rival £50bn PPI scandal, FCA chief warns

“The judgment, as you will all appreciate, is pretty seismic and has an impact I think that's not really been addressed in the judgment,” Butler said. “It potentially covers now all intermediary, broker-led business products... where commission in its various forms is paid for both regulated and unregulated products, and where the customer is not told the amount, nor explicitly consents to it on a fully informed basis.”

The judgment consolidated three cases, each involving customers who purchased vehicles through dealership-assisted finance. Butler said in one instance, there was no mention of commission in the customer’s documents. In the other two cases, the lenders’ terms and conditions only vaguely referenced the possibility of commission.

Historically, the industry relied on arguments that customers understand brokers and dealers are not impartial financial advisors, are aware of their own budgets, and are satisfied with the deals they secure. However, Butler observed, “The Court of Appeal has driven a coach and horses through all of that.”

He said the court ruling that it is unlawful for brokers to receive commissions from lenders without first obtaining informed customer consent now imposes significant duties on brokers, including a disinterested duty to provide impartial information, advice, or recommendations on the lender’s behalf.

A second duty, described as an ad hoc fiduciary duty, requires brokers to act with loyalty and avoid conflicts of interest, particularly in dealing with vulnerable or unsophisticated customers. Additionally, brokers must disclose all commissions in a clear, timely, and prominent manner, including specifics about the amount and how it is calculated.

According to Butler, the court made it clear that vague disclosures such as stating that a broker “may” receive a commission are insufficient.

Butler highlighted several ambiguities in the judgment that require clarification. The Court of Appeal based its decision on previous cases in common law, which are difficult to reconcile, particularly regarding what constitutes “secret” commission.

The judgment, he added, also exceeds the FCA’s existing consumer credit disclosure rules under the Consumer Credit Sourcebook (CONC), creating inconsistencies between regulatory and judicial frameworks. Furthermore, the court identified brokers as agents of lenders, raising questions about how brokers can fulfil fiduciary duties to customers while serving the lender’s interests.

Butler explained that the court’s division of vehicle sales and financing into two unrelated transactions does not reflect how customers typically approach these deals. The ruling could also affect other financial arrangements, such as B2B leasing deals, which were not specifically addressed but may fall within its scope.

While the FCA review of the motor finance market is due to conclude in early 2025, Butler noted that resolving the broader legal and regulatory uncertainties will take time. Meanwhile, the FCA has announced consultations on cases involving non-discretionary commission, with proposals expected in December.

In the short term, Butler emphasised the importance of transparency and thorough documentation. He said lenders and brokers need to preserve records of historical practices to demonstrate the extent of customer awareness of commission arrangements. They must also reassess customer journeys to ensure disclosures are clear and comprehensive, taking into account the varying levels of sophistication and vulnerability of customers.

Butler acknowledged the broader consequences of the ruling, including potential reductions in consumer choice and increased costs passed on to customers. “The FCA sets out to protect customers,” he said, “but what will it ultimately achieve? Time will tell, but meanwhile, the sector faces untold damage.”