In April 2025 the Supreme Court heard the much-anticipated appeal against the Court of Appeal's decision on the payment of commission by lenders to motor dealers.
This case is an appeal of the recent cases of Johnson v FirstRand Bank Limited (Johnson), Wrench v FirstRand Bank Limited (Wrench), Hopcraft v Close Brothers (Hopcraft), which raised key questions around broker and lender liability for motor finance 'half-secret' or 'secret' commission payments. The judgment is expected in July 2025, with no final date set yet.
The motor finance cases: what did they say?
Johnson, Wrench and Hopcraft, referred to as the motor finance cases, concerned the disclosure of commissions made to car dealerships who arranged finance for customers. Credit agreements were made between the claimants and lender defendants, referred by the car dealers. As a result, the car dealerships received a commission – of which a level of discretion existed – from the lender for arranging the credit agreement.
In Hopcraft, the commission was kept secret from the claimants, and in Wrench and Johnson, the claimants were unaware, but the lender's terms and conditions referenced a commission payment. In Johnson, the car dealer provided a separate document to the claimant, informing them of a commission arrangement between the lender and car dealer, however, this was considered a 'partial disclosure,'.
Previous Court of Appeal (CoA) ruling
The CoA ruling in October 2024 upheld the three appeals in favour of the claimants. It was held that the car dealers in these cases were acting as credit brokers and owed a disinterested duty i.e. a duty to provide information, advice or recommendations on an impartial or disinterested basis, alongside an ad hoc fiduciary duty to customers.
In Hopcraft, as there was no disclosure of the commission arrangement, a breach of the disinterested duty was held to exist, with the credit broker and lender liable to the customer. In Wrench, the separate document did not negate secrecy, and the partial disclosure constituted a breach of fiduciary duty. In Johnson, the courts found the lender liable as an accessory to the credit broker's breach of fiduciary duty.
Implications and practical considerations for clients
The CoA ruling has had a significant impact on lenders in the motor finance industry as it could mean that they are subject to mass consumer claims. The ruling imposes an increased scrutiny on lenders' procedures for future loans and past commission arrangements, so funders must consider whether ongoing commission arrangements comply with their conflicts of interest policy.
The ruling of the CoA is also at odds with the Financial Conduct Authority's (FCA) guidance to the motor finance industry, as the FCA only requires that the dealer (not the lender) discloses commissions, and only in certain circumstances. There is no requirement to obtain a consumer's informed consent in connection with a commission fee in the FCA's rules.
The case was heard at the Supreme Court in April 2025 and a judgment is expected in the coming months, however the FCA and many lenders are keen for an expedited judgment to provide legal certainty in connection with the liability and remedies. The case is of significant importance to the motor finance industry, which has never previously had to seek informed consent from consumers before receiving commission. There is huge potential for mass-claims, complaints and claims for refunds.
The judgment of the Supreme Court will provide much-needed clarity and will allow the Financial Conduct Authority to establish its position and provide the motor finance industry with some of the certainty it requires.
Please contact a member of the Banking and Finance team at Trowers & Hamlins if you would like further information in relation to this.
