Motor finance providers breathe a sigh of relief but will a potential FCA redress scheme throw a spanner in the works?

The Supreme Court allowed the appeals brought by the lenders in relation to the finding of a fiduciary duty but upheld the unfair relationship claim brought by Mr Johnson.

The main takeaways are:

• Disinterested duty: The Court of Appeal had relied greatly on Wood v Commercial First Business Ltd [2021] EWCA Civ 471, which had concluded that a disinterested duty, which is distinct from a fiduciary duty, was sufficient for a claim in bribery to be successful. The Supreme Court rejected this and said that the Court of Appeal in Wood was wrong to hold that a fiduciary relationship is unnecessary. It emphasised that "what is critical in this context is the existence of a fiduciary duty of loyalty" and that "a purely contractual duty to give disinterested advice is different in its legal nature and consequences from a fiduciary duty of loyalty."
• No fiduciary duty: The Supreme Court definitively ruled that "the dealers in the present cases were not subject to any fiduciary duty towards their customers."
• Bribery claims failed: Civil liability for bribery cannot arise unless a fiduciary duty of loyalty was owed. As the dealers did not owe any fiduciary duty to their customers, all bribery claims failed.
• Unfair relationship upheld: The relationship between Mr Johnson and FirstRand was unfair within section 140A of the CCA due to "the size of the commission, the failure to disclose the commission, and the concealment of the commercial tie."
• Full disclosure and consent required: Where a fiduciary duty does exist, to avoid liability, there must be a full disclosure of all "material facts" and the principal must give their "fully informed consent." What will constitute material facts depends on the circumstances.

In reaching its conclusion that the dealers did not owe a fiduciary duty to their customers, the Supreme Court highlighted the following points:

• Arm's length commercial relationship: Each of the three participants were separately engaged at arm's length pursuing separate commercial objectives - the dealer seeking to sell a car profitably, the lender seeking to deploy loan finance profitably, and the customer seeking to acquire a suitable car at an affordable price. Furthermore, the dealer's continuing status as an arm's length party to a commercial negotiation in pursuit of its own separate interests is "irreconcilably hostile to the recognition of a fiduciary obligation owed to another party in that negotiation."
• Ancillary service nature: The dealer's credit brokerage activity was not provided as a distinct separate service but was simply a means whereby the dealer could use its knowledge and contacts to facilitate what was essentially a sale transaction from start to finish.
• No express undertaking: At no time did the dealer give any express undertaking or assurance that it was putting aside its own commercial interest when finding suitable credit.
• No agency: Although the dealer did undertake certain activities as an intermediary, it was not the agent for the customer in the negotiation of the finance package with the lender.
• Dependency/vulnerability: While there are elements of dependency on or vulnerability to the dealer affecting the customer in relation to a financing package (the Court of Appeal here had described all three individuals as vulnerable customers), in the absence of an undertaking of loyalty, dependency or vulnerability are not indicators of a fiduciary relationship.
• Regulatory context: It is important to consider the regulatory framework governing motor dealers and lenders when determining the existence of a fiduciary duty. The statutory agency which is deemed to exist between a dealer and lender in accordance with section 56(2) of the CCA (which built on the position in the Hire Purchase Act 1964), reflected that the reality of a typical negotiation between a dealer, lender and customer did not cast the dealer into the role of someone undertaking a duty of single-minded loyalty to the customer when obtaining suitable financing. Moreover the provisions in the FCA's Handbook applying to lenders and the dealers (when acting as credit brokers) do not reflect the more demanding duties of a fiduciary regarding the exclusion of self-interest, the disclosure of information, and avoidance of conflicts of interest, leading the Court to conclude that "[i]t is clear therefore that the regulatory regime, which the FCA operates on statutory authority, is not premised on car dealers when acting as credit brokers being subjected to the no profit and no conflict rules and having the obligations of full disclosure of a fiduciary." 

While the Supreme Court noted that there is no "precise definition" in law when a fiduciary duty arises, it has provided helpful commentary on some of the key indicators of a fiduciary relationship. This will serve as useful guidance when assessing whether such a relationship arises, particularly in cases outside of well-established fiduciary relationships (such as company director, partner, or an agent in a commercial context).

• Undertaking to act exclusively for another: The fundamental requirement is the undertaking by the fiduciary to act in the interests of another person (and therefore not in their own interest) as the source of the duties. There must be "the assumption of responsibility by the fiduciary to act exclusively on behalf of the other in the conduct of the other's affairs."
• Single-minded/undivided loyalty: The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. The typical features must be compatible with "any obligation of undivided or selfless loyalty."
• Specific trust and confidence: A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The particular kind of trust and confidence that may point towards a fiduciary relationship is "trust and confidence that the alleged fiduciary will act with single-minded loyalty towards the claimant, to the exclusion of his or her own interests."
• Commercial context analysis needed: The Courts must consider the terms of any contract between the parties or unilateral undertaking, the wider transaction, and the commercial context of the relationship between the parties in order to "ascertain whether and to what extent a person is to be taken to have undertaken such obligations." The key question to ask is what obligations of a fiduciary may be reasonably expected to apply in the particular context. 
• Power/discretion over another's interests: The critical feature is that the fiduciary undertakes or agrees to act for or on behalf of another in the exercise of a power or discretion which will affect the interests of that other person. The relationship gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person.
• Conscious assumption of responsibility: Fiduciary duties arise where a person consciously assumes responsibility in relation to the management of the property or affairs of another. This must be in circumstances where he or she knows or ought to appreciate that this carries with it the expectation that he or she will act with loyalty.

Despite rejecting the fiduciary and bribery claims, the Supreme Court upheld Mr Johnson's section 140A Consumer Credit Act claim, although it criticised the Court of Appeal's approach to determining this. In particular, the Court of Appeal had erred:

• in placing reliance on whether Mr Johnson had made a bad bargain, which had not been pleaded
• in assuming that the discrepancy between the sale price and market value was largely accounted for by the payment of commission.

The Court noted that Consumer Credit Act unfairness tests are deliberately expressed in general terms, allowing a diverse range of factors to be considered in what is a highly fact-sensitive analysis. 

The judgment agreed that several non-exhaustive unfairness indicators identified by the FCA in its submissions to the Supreme Court as an intervener "will normally be relevant":

• size of commission relative to the charge for credit
• nature of commission (eg whether the commission is a discretionary commission as this may incentivise charging a higher interest rate)
• consumer characteristics
• disclosure quality and comprehensiveness
• regulatory compliance.

Here it found that the relationship was unfair based on multiple factors:

• Non-disclosure of the commission (note however that this in and of itself did not automatically make the relationship between a lender and consumer unfair – it was merely a factor to be taken into account).
• Substantial commission representing 55% of total credit charges. The Court was not minded to follow the approach in Plevin, which dealt with a "different product in different markets" in its approach to assessing the significance of the commission paid it nonetheless concluded that "the fact that undisclosed commission was so high was a powerful indication that the relationship between Mr Johnson and FirstRand was unfair."
• Non-disclosure of the commercial tie between the lender, FirstRand, and the dealer, which gave FirstRand a right of first refusal. The false impression had been created that the dealer was offering "products from a select panel of lenders."
• Level of customer's commercial sophistication: Although Mr Johnson did not read the documents provided to him by the dealer (which had outlined that the transaction may include the payment of commission to the dealer), the Court held that the lender could not reasonably expect him to understand the documents given he was commercially unsophisticated.

On 3 August 2025, the FCA announced that it will consult on an industry-wide scheme to compensate motor finance customers who were treated unfairly and held a briefing call with motor finance analysts. This follows the Supreme Court's finding on unfairness and is in the context of a detailed review of the past use of motor finance.

The true impact will be uncertain until we see the detail of the proposed scheme but here are some items to note from the FCA's market statement:

• The FCA aims to publish the consultation by early October. It will be open for 6 weeks. It expects to finalise any scheme in time for people to start receiving compensation in 2026.
• The FCA will propose that the scheme covers discretionary commission arrangements (DCAs) and will consult on which non-DCAs will be included. The scheme should cover agreements dating back to 2007.
• The overall cost is unlikely to be materially lower than £9 billion and it could be materially higher, as high as £18 billion but the FCA does not consider those scenarios to be the most likely and analyst estimates in the mid point of this range are more plausible.
• The FCA currently estimates that most individuals will probably receive less than £950 in compensation per agreement.
• Unfairness factors could include: the size of the commission relative to the charge for credit, the nature of the commission, for example, whether it is discretionary, the characteristics of the consumer, compliance with regulatory rules, and the extent and manner of disclosure. Redress would depend on non-disclosure of the factors above and the interaction between them.
• The FCA has not yet decided if the scheme should be opt-in (customers would have to confirm to their firm by a certain date that they wish to be included) or opt-out (customers are automatically included unless they opt out).

The Supreme Court's emphatic rejection of the existence of fiduciary duties between motor dealers and their customers was a major success for both motor finance providers and dealers given the potential cost to the industry, with a number of banks' share prices rebounding in the immediate aftermath of the judgment.

At the same time, the upholding of a finding of unfairness under the CCA affirms the importance of this consumer protection tool and should remind motor finance providers that they face potential liability if commission payments to dealers are challenged on the grounds of unfairness.

The reaction from some to the FCA's forthcoming consultation on a redress scheme has been mixed. While the FCA's swift statement to the markets was positively received, it raised a number of uncertainties, which were highlighted by the House of Lords Financial Services Regulation Committee in correspondence with the FCA on 8 August 2025:

• What is the legal basis for the proposed timeframe going back to 2007 and how does this align with the statutory limitation periods for bringing a claim?
  
• Has the FCA used modelling on the indicative cost of the scheme aligned with the six-year statutory limitation periods?
• How will the FCA ensure the administrative costs of the scheme are proportionate to the level of redress?
• What is the basis of the FCA's expectation that 'a healthy finance market for new and used cars to continue notwithstanding any redress scheme'? 

Determining adequate answers to these questions will be vital to ensuring the optimal design of any redress scheme, and maintaining regulatory predictability and market certainty.

The motor industry should also track two Court of Appeal hearings:

• The appeal in Clydesdale v FOS, which is listed for 16 September 2025 and which relates to a judicial review of a FOS decision, which upheld a complaint relating to a discretionary commission arrangement in a motor finance agreement.
• The appeal in Angel v Black Horse, which is listed for 22 April 2026 and which relates to whether multiple motor finance claims can be brought by using one omnibus claim form.

While the judgment has provided some much needed clarity on whether a fiduciary duty arises in the context of the motor industry, important questions and considerations remain for financial intermediaries and brokers in other sectors and settings, who may operate under fundamentally different commercial arrangements and regulatory frameworks.

We have already considered above the indicators for establishing a fiduciary duty. 

Brokers/intermediaries outside of the motor finance sector should carefully assess whether they may have inadvertently created a fiduciary relationship, particularly where:

• they provide brokerage as a distinct, standalone professional service
• they hold themselves out as acting primarily in the client's interests
• they have undertaken to provide disinterested advice
• the service relationship is separate from any underlying commercial transaction. 

Where a broker/intermediary determines that there is a fiduciary relationship with their client, they should put in place robust disclosure processes and ensure their client has provided their fully informed consent to any payments the broker/intermediary receives.