The UK Supreme Court has recently handed down its judgment in a thread of cases which have gained a lot of public attention.
The Supreme Court found in favour of car dealers in determining whether certain car finance agreements are unlawful.
This decision came as a surprise to many, who had been gearing up for large payouts to customers of car finance deals following the Court of Appeal judgment in October 2024.
Many cases brought by customers are now on hold whilst further details are awaited from the Financial Conduct Authority (FCA) on its proposed compensation scheme.
Background
In 2021, the FCA banned car finance deals which involved the car dealer receiving a commission from the lender, based on the interest rate charged to the customer. Often, the car dealer would set the interest rate of a loan; the higher the rate, the more commission they would be paid from the finance company.
These arrangements were known as Discretionary Commission Arrangements (DCAs) and, critically, there was no duty to make the customer aware of them.
Court of Appeal ruling
In October 2024, the Court of Appeal heard cases from three individuals who appealed against the dismissal of their claims at first instance for the redress of their previous car finance arrangements. Their claims were centred around the commissions paid by the lenders to the car dealers, under these arrangements, being kept secret or “half secret”, and were therefore unlawful (Johnson v FirstRand Bank Ltd [2024] EWCA Civ 1282).
The Court of Appeal allowed the appeals, finding that car dealers had fiduciary duties towards customers when arranging a car loan, and that they have a duty to give “disinterested” or “impartial” advice to customers (often referred to as the “disinterested duty”).
The advice given by the car dealers to the customers could fundamentally not be deemed disinterested, given the dealers’ commercial interest in the commissions to be received.
Therefore, it was held that the car dealers had acted unlawfully. However, this decision was jointly appealed to the Supreme Court by the lenders.
Supreme Court ruling
On 1 August 2025, we received the answer, when the Supreme Court handed down its judgment on Hopcraft and Another v Close Brothers Ltd [2025] UKSC 33.
The Supreme Court largely overturned the Court of Appeal’s decision, siding with the lenders in 2/3 of cases. Crucially, the Court held that car dealers do not owe fiduciary duties to customers in the context of arranging finance. Dealers operate with their own commercial interests in mind, whether setting the sale price or determining the interest rate on finance products. At no point had the car dealers given any assurance to put aside these commercial interests when determining the interest rate for the finance product (which directly impacted their commission payment). This commercial dynamic was found to be fundamentally incompatible with the imposition of a fiduciary duty.
In one of the cases, the relationship between the customer and the lender was deemed unfair under the Consumer Credit Act, as the commission paid by the customer was 55% of the total charge for credit. The Supreme Court awarded the customer the amount of the commission (£1,650.95) plus interest (totalling just over £3,000).
This crucial decision means that many customers expecting and hoping for compensation may now not be eligible. The FCA has commented that it will consider the judgment in light of a proposed compensation scheme (see below).
The FCA’s proposed compensation scheme
Consultations for the proposed a compensation scheme will begin in October 2025, with payments expected to begin next year (2026).
The FCA anticipates that customers eligible to claim are likely to get less than £950 per car finance deal. There are also concerns that customers could lose out on compensation due to lack of available paperwork regarding deals entered years ago.
The FCA anticipates that the scheme could cost between £9 billion – £18 billion, which will be payable by the finance industry. Whilst this is not nearly as much expected by some, this is still not an insignificant financial hit to the industry.
Giving you the full picture
This case has involved an analysis between the commercial interests of car dealers and finance companies, alongside the need to provide fairness in consumer contracts.
Whilst the recent Supreme Court decision has given car dealers and finance companies a degree of relief, the story does not end here, as investigations by the FCA in relation to DCAs are ongoing. This means that many customers could still be owed compensation. However, as discussed above, for most customers this will be significantly less than they were anticipating. It also leaves open the possibility of consumer redress under the Consumer Credit Act where commission arrangements are excessive or opaque.
Practically, there are several steps car dealers and lenders should be doing, following this judgement:
- assessing commission practices, both past and present, and considering any changes that need to be made to current practices. Consider giving vulnerable customers extra support in respect of any commission arrangements;
- reviewing customer complaints and estimating any potential financial liability;
- reviewing and strengthening complaints processes;
- reviewing the outcomes of the FCA’s consultation as it develops and being prepared to engage constructively in these industry discussions.
If you are concerned about your potential liability or current commission arrangements, please get in contact with:
Related material:
The Supreme Court’s press release
