Motor finance commission

The Supreme Court rejected the Court of Appeal's finding that dealers owe fiduciary duties to customers when acting as credit brokers. The Supreme Cour concluded that "the dealers in the present cases were not subject to any fiduciary duty" and therefore "the customers' claims against the lenders in equity and in bribery cannot succeed".

The Supreme Cour found, however, that the relationship between Johnson and FirstRand was unfair within the meaning of section 140A of the Consumer Credit Act (CCA) “by reason in particular of the size of the commission, the failure to disclose the commission, and the concealment of the commercial tie between the dealer and FirstRand".

Most importantly for lenders and brokers:

• No fiduciary duties are owed by dealers to customers in typical motor finance transactions
• Claims against lenders for bribery and dishonest assistance are unlikely to succeed
• Compensation liability has been significantly reduced

However, ongoing risks remain:

• Unfair relationship claims under section 140A CCA remain viable
• Disclosure requirements are stringent
• Commission structures and commercial ties must be properly disclosed

The Supreme Court found that the typical features of motor finance transactions "are incompatible with recognition of any obligation of undivided or selfless loyalty by the dealer to the customer. The continuing status of the dealer as an arm's length party pursuing its own separate interests is irreconcilably hostile to recognition of a fiduciary obligation".

The Supreme Court noted that "each of the three participants was 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".

The judgment establishes strict disclosure standards. In relation to Johnson’s claim, where a commission of 55% of the total charge for credit was paid, the Supreme Court noted that "A customer would not expect that a commission of this size would be payable and, as a result, a term of the importance of [the commission clause] is required to be displayed more prominently and the customer's attention expressly drawn to it".

The following requirements are key:

• There must be prominent disclosure of the existence and nature of any commission payable.
• Express attention must be drawn to any commission terms.
• Commercial ties between dealers and lenders must be disclosed.
• The size of commission paid will be a critical factor in an assessment of potential unfairness.

Many factors are relevant. In written submissions, the FCA identified the size of the commission relative to the charge for credit; the nature of the commission; the characteristics of the consumer; the extent and manner of disclosure; and compliance with regulatory rules.

In Johnson's case, commission paid was £1,650.95, representing 26% of the credit advance and 55% of the total charge for credit. The Supreme Court found the "undisclosed commission being so high” to be “a powerful indication that the relationship was unfair".

Potential remedies are wide ranging and include:

• The repayment of commission plus interest
• Interest rate reductions
• Modifications to an agreement’s terms
• In extreme cases, recission of the agreement.

In Johnson's case, the Supreme Court ordered that the commission of £1,650.95 should be paid to the claimant, plus commercial interest from the date the loan was taken out.

Claims for bribery and dishonest assistance in relation to similar commission payments are likely to fail. Section 140A claims of unfairness remain viable, however, where there are disclosure failures or disproportionate commissions.

The FCA’s pause on responding to complaints about motor finance commission arrangements remains in place until after 4 December 2025.

Lenders and brokers should review current arrangements and documentation, updating both where necessary, including:

• Ensuring that commission disclosure practices have sufficient prominence
• Highlighting commission terms in agreements and documentation
• Understanding commercial ties and how they should be disclosed
• Training staff on new disclosure requirements.

In terms of ongoing compliance, firms should:

• Review arrangements for compliance with CONC, particularly 4.5.3R and 3.7.4G
• Review commission structures for proportionality
• Assess existing complaint handling procedures.