What next for car finance claims?

The UK Supreme Court has delivered its long-awaited judgment spanning three conjoined appeals, a decision set to reshape the legal landscape of motor finance law.

In Hopcraft v Close Brothers Limited, Johnson v FirstRand Bank Limited, and Wrench v FirstRand Bank Limited, the court addressed the fundamental question of when undisclosed commission payments from lenders to dealers give rise to a legal claim.

The appeals arose from a familiar scenario to millions of car buyers: a car dealer arranges finance for a consumer and receives a commission from the lender for the referral. The central issue was that these commission payments were not adequately disclosed to the consumer during these dealings.

Car dealers arrange finance for a consumer and receives a commission from the lender for the referral (Picture: stock.adobe.com)

The Court of Appeal had previously found for consumers, ruling that dealers owed fiduciary duties or a duty to provide “disinterested advice” when arranging finance (following Wood v Commercial First Business Ltd, 2021). This exposed lenders to potential liability for bribery or for being liable to the consumer in equity as a dishonest accessory to the dealer’s breach of fiduciary duty.

However, in a unanimous decision, the Supreme Court held that dealers do not owe consumers fiduciary duties. Consequently, lenders are not liable for bribery in common law.

The Court found that dealers are sellers pursuing their own commercial interests, where the finance arrangement is secondary to the primary goal of selling a car. It reasoned that dealers do not promise to subordinate their interests to those of the consumer and are free to pursue their own interests at arm’s length, subject to the usual legal and regulatory constraints. The Court found vague statements about finding “suitable” finance were deemed insufficient to create a fiduciary duty. The claims for bribery and dishonest assistance in breach of fiduciary duty (equity) on the part of the lender failed for these reasons.

The Court also rejected the Court of Appeal’s novel concept from Wood of a “disinterested duty” – an obligation that the court found was sufficient to support a bribery claim. The Supreme Court affirmed that a claim for bribery requires a breach of a full fiduciary duty, and nothing less will suffice.

Karolina Navickaite is a Trainee Solicitor, Balfour+Manson (Picture: Phil Wilkinson

Despite the failure of the other claims, Mr Johnson succeeded with his claim against FirstRand Bank Limited, under section 140A of the Consumer Credit Act 1974. This provision empowers courts to remedy an “unfair relationship” between a creditor and a debtor.

The Court found the relationship unfair due to three key factors: excessive commission, as the figure of £1,650.95 represented 55 per cent of the total charge for credit; breach of regulatory requirements to disclose commission; and commercial ties, as the dealer was contractually bound to offer business to FirstRand first, despite claiming to use a panel of 22 lenders.

The success of this claim is a warning that excessive and undisclosed commissions can still be challenged if they create an “unfair relationship”. The court ordered FirstRand Bank Limited to repay Mr Johnson the value of the commission plus interest.

More generally, this landmark decision clarifies that the typical dealer-consumer relationship is commercial, not fiduciary, bringing much-needed clarity to the sector. While a victory for lenders on fiduciary duties, the judgment reinforces that consumers retain powerful statutory protections against genuinely unfair practices.

The full implications will become clearer as the industry and regulators adapt. At the time of writing, the Financial Conduct Authority (FCA) is consulting on a potential multi-billion-pound redress scheme for the motor finance market.

Karolina Navickaite is a Trainee Solicitor, Balfour+Manson