Motor finance lenders should consider the levels of provision they should recognise and, if appropriate, update the market accordingly. Firms should also prepare for the FCA’s redress scheme, using the factors that the FCA has already indicated will be included. We assess the implications for motor finance lenders of the Supreme Court’s judgment and the FCA’s announcement to publish a consultation by early October on a redress scheme.
The Supreme Court judgment has come as a major relief for motor finance lenders because it overturned the two most contentious findings from the Court of Appeal - namely, those relating to bribery and the existence of a fiduciary duty. Although the Court upheld the finding of unfairness under the Consumer Credit Act in one of the three cases, this aspect was fact-specific and does not detract from the broader significance of the ruling in favour of the lenders.
The Supreme Court determined that the dealer acted in its own interests and did not prioritise those of the customer. Crucially, the dealer did not offer credit brokerage as a distinct and independent service separate from the sale transaction. At no point did it provide any explicit assurance that, in sourcing a suitable credit arrangement, it was setting aside its own commercial interests as a seller.
Moreover, the dealer did not represent the customer as an agent during the finance negotiations with the lender. Instead, its involvement was limited to that of an intermediary, without any authority to enter into legal relations on the customer’s behalf.
Based on these key findings, the Court concluded that the relationship between the dealer and the customer did not give rise to fiduciary obligations.
Taking all the above factors into account, the Supreme Court concluded that the elements necessary to establish a bribe were not met. As a result, the claims relating to bribery did not succeed.
The Supreme Court emphasised that each case under this rule must be assessed on its individual facts, but nonetheless identified a number of factors which the FCA has said it will reflect in its proposed redress scheme. In the case at hand, the Court ruled in favour of the customer, based on several key considerations:
The FCA announced that by early October 2025, it will launch a six-week consultation to develop a redress scheme to commence in 2026.
The FCA’s compensation scheme will cover discretionary commission arrangements and also possibly some non-discretionary arrangements, which may have led to unfair outcomes for customers from 2007. Building on the Supreme Court’s judgment, so elements of the compensation scheme are clear already – including factors such as the structure and size of commissions, the impact on consumers, and the level of transparency in financial terms.
Redress calculations will be based on the degree of harm caused to consumers, with an emphasis on maintaining access to affordable motor finance. Penalty interest is proposed at a rate of base rate plus 1%, equating to approximately 3% per annum.
The FCA will also consider whether to adopt an opt-in or opt-out model, but in any case, the FCA has made it clear that it expects firms to proactively inform potentially affected customers.
The FCA has estimated that the cost of the scheme will be in the range of £9 billion to £18 billion, with the average individual compensation likely to be under £950 per agreement (and no more than the commission charged).
Based on the above, the Supreme Court ruling has provided welcome relief to motor finance lenders. With the Court narrowing the focus of concern, the spotlight has now shifted to the FCA’s redress scheme.
Whilst the details of the FCA’s scheme will be subject to consultation, some key features are clear. Firms should now assess their lending against the key indicators outlined by the Supreme Court to determine the extent to which those key features occurred within their portfolio. This will require gathering and reviewing evidence that supports the fairness and transparency of their terms, and assessing the levels of provisions lenders need to make. Our previous article highlighted the critical factors Motor Finance lenders must consider in developing a redress scheme.
For the broader financial services sector, the Supreme Court’s judgment and the FCA’s rapid follow-up announcement highlight two trends: the importance of fairness in firms’ dealings with their customers, and the FCA’s focus on giving as much clarity as quickly as it can for firms – in the context of its new focus on growth as well as the integrity of the markets it regulates.
Our expertise in the motor finance sector spans multiple areas, supporting firms across the industry.
We understand the complexities involved in these types of issues and offer a comprehensive range of support, tailored to a firm’s specific needs and its position in the redress journey. To speak to one of our motor finance experts, get in touch using the button below.
[1] https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers
[2] https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
On 11 January, following the first decisions from the Financial Ombudsman Service (“FOS”) upholding complaints relating to “discretionary commission arrangements”, the FCA published its long-expected intervention relating to historic commission issues in the motor finance sector.
Following the recent FCA announcement on the potential outcome of its Motor Finance review, the new implications arising from the Court of Appeal judgment and insights from past remediation exercises, motor finance lenders should proactively consider the necessary steps to prepare to address concerns raised in the FCA’s review of discretionary commission arrangements and any further developments stemming...
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