On 1 August, the Supreme Court gave its eagerly anticipated ruling in Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd [2025] UKSC 33.
In a decision which gave finance lenders some comfort, it partially allowed appeals in three conjoined cases about the lawfulness of commission payments by the lenders to motor dealers in connection with hire-purchase agreements for cars. Last year's Court of Appeal decision was received with dismay by the industry with estimates of over £40 billion required in compensation for consumers.
The key issues that the Supreme Court had to consider in its 110-page judgment were:
- if dealers owed fiduciary duties to customers when arranging finance; and
- if the fact that they had not disclosed commissions or only partly disclosed them (such as hidden away in terms and conditions) meant those commissions were bribes or secret profits.
Each customer claimed payment of an amount equivalent to the commission from the lenders under the tort of bribery. Two customers claimed compensation from the lenders in equity for dishonestly assisting the dealers' receipt of secret profits. One customer (Mr Johnson) claimed his agreement with the lender was unfair under the Consumer Credit Act 1974 (CCA).
The Supreme Court rejected the customers' arguments against the lenders in equity and in tort. Therefore, the lenders' appeals on those aspects were allowed. It said that in general, it is normally inappropriate to expect a commercial party to subordinate its own interests. In particular, a commercial transaction in which one party has a financial interest, known or apparent to the other party, in bringing the transaction into fruition, is not one in which an undertaking of single-minded loyalty and altruism can readily be implied.
The Court held that the typical features of the transactions under review did not give rise to a fiduciary duty sufficient to create liability for bribery either under the common law tort or equity. They were incompatible with the recognition of any obligation of single-minded or selfless loyalty by the dealer to the customer when sourcing and recommending a suitable credit package.
Consumer Credit Act unfair relationship claim
However, and it's a reasonably big however, the Court held that Mr Johnson was entitled to succeed in his claim under section 140A of the CCA, although it came to its conclusion for different reasons to the Court of Appeal. It said that its decision came down to:
- The size of the undisclosed commission, which in this case was 55% of the total charge for credit.
- The failure to disclose the commission was a breach of the FCA's rules in CONC 4.5.3R.
- The concealment of a commercial tie between the dealer and lender under which the lender had a right of first refusal to provide finance to the dealer's customers.
It said that the issue of an unfair relationship was fact-specific, and the following criteria were relevant when deciding if an unfair relationship existed:
- The size of the commission relative to the charge for credit.
- The nature of the commission (because, for example, a discretionary commission may create incentives to charge a higher interest rate).
- The characteristics of the consumer, eg if they are vulnerable in some way.
- The extent and manner of disclosure.
- Compliance with regulatory rules.
This clarity helps the FCA because it has been looking at what is unfair and, before this judgment, there were different interpretations of the law coming from different courts.
What happens next?
The FCA has issued a statement welcoming the judgment. It is also consulting on a compensation scheme to provide clarity and certainty to consumers, firms and investors as quickly as possible. It also wants to ensure the integrity of the motor finance market, so it works well for consumers now and in the future. The compensation scheme would balance principles including fairness, timeliness, and certainty. The FCA currently estimates that most individuals will probably receive less than £950 in compensation per agreement. The consultation will launch by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.
The FCA has also made clear that it won't "haggle" with lenders. They have reportedly said that they can't pay redress on car loans going back to 2007 due to a lack of customer records. The FCA has acknowledged that it may be difficult but says that if you have broken the law you can't refuse to put things right.
The House of Lords Financial Services Regulation Select Committee has asked the FCA to answer questions on the proposed motor finance redress scheme regarding the period covered by its redress scheme, the cost of the scheme, the administration costs and the impact on the market. The FCA is asked to appear before the Committee in September 2025 to respond.
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