The UK’s motor finance industry faced a pivotal moment as the Supreme Court recently heard a landmark appeal that could reshape the sector’s regulatory and financial landscape. This high-profile case arose from an earlier Court of Appeal ruling in October 2024, which found it unlawful for car dealers to receive undisclosed commissions from lenders without informing their customers.
Background: The Case That Sparked an Industry Shake-up
In October 2024, the Court of Appeal ruled that car dealers who failed to disclose commissions received from lenders had breached fiduciary duties owed to customers. The court held that these undisclosed payments created a conflict of interest, which undermined the principle of trust and transparency central to consumer finance agreements.
The case was brought against a motor finance firm, with claims that the consumer had not been properly informed about the commission paid to the dealer arranging the loan. This decision sent shockwaves through the industry, as it set a precedent that could apply to thousands of historic car finance deals.
Industry Reaction and Financial Fallout
In response to the ruling, the motor finance industry braced for a potential compensation crisis. Analysts estimated that financial institutions could face a compensation bill in the region of £30 billion if the Court of Appeal’s interpretation was upheld. Major lenders, including Lloyds Banking Group and Close Brothers, set aside hundreds of millions in anticipation of future claims.
The Financial Conduct Authority (FCA) expressed significant concern over the implications of the Court of Appeal’s decision. The regulator warned that imposing fiduciary duties on dealer-brokers could destabilise the sector and lead to widespread uncertainty in other areas of consumer finance. The FCA intervened in the Supreme Court appeal to help ensure a more measured legal outcome.
Supreme Court Appeal: A Race for Clarity
Recognising the potential scale of the fallout, the Supreme Court agreed to hear appeals from Close Brothers and FirstRand Bank. The hearing began on April 1, 2025, and was fast-tracked given the urgency of the matter. The industry and consumers alike waited anxiously for the ruling, which is now expected to be delivered by summer or early autumn.
