Supreme Court Ruling on Car Finance: What does this mean?

Legal Background and Court Proceedings

There are two types of car finance commission in issue:

1. The first are discretionary commission arrangements (DCAs) – this is where car dealers or brokers could increase the amount of interest people were charged in order to earn more commission. The FCA banned these in 2021 due to concerns about unfairness. We think that DCAs were applied to around 40% of all car finance deals pre-2021.

2. The second are fixed commission arrangements – these involve a fixed level of commission payable by the lender to the car dealership.

Three cases were brought before the Court: Hopcraft, Wrench and Johnson.

Hopcraft and Wrench both alleged that the car dealership or broker owed the consumer a special kind of duty to act in their best interests (known as a fiduciary duty). If this fiduciary duty existed, then any commission payment made by the lender to the car dealer would be a bribe unless the consumers informed consent had been obtained.

Johnson’s claim was different. Johnson alleged that his car finance deal was unfair for the purposes of the Consumer Credit Act. This on the basis that:

• the size of the commission paid by the lender to the car dealer was significant;
• the documentation did not disclose the existence of a commercial tie between the lender and the dealer in which the lender had a right of first refusal, but instead created the false impression that the dealer was offering “products from a select panel of lenders”; and
• indicating that they were recommending “the Consumer Finance product that best meets your individual requirements”.

The full extent of the Hopcraft, Wrench and Johnson claims were upheld by the Court of Appeal.

The Lenders then appealed further to the Supreme Court.

Supreme Court Ruling

On Friday 1 August 2025, the Supreme Court issued its final ruling.

In relation to Hopcraft and Wrench– the lenders appeal was upheld, and the claims were disallowed. Car dealerships do not owe consumers a fiduciary duty, and accordingly, any commission paid by a lender to a car dealership without the consent of the consumer was not a bribe. A finding in favour of Hopcraft and Wrench would have rendered almost every commercial commission arrangement (not only car finance loans) as a potential bribe, so the decision on this issue was significant for the financial markets more broadly.

However, Johnson’s claim was upheld. Johnson’s car finance deal was established as unfair. The Court referred to several criteria in making its assessment including the size of the commission (referred to as a ‘powerful indication that the relationship.... was unfair’) and the existence and failure to disclose the lenders first right of refusal. The Court also referenced customers being expected to read detailed terms and conditions as questionable particularly when important statements were not given any prominence. This effectively means that any commission arrangement where unfairness can be established could be eligible for the purposes of a legal challenge, and be eligible for compensation.

The immediate aftermath of the hearing saw the media focus on the Court’s failure to uphold the Hopcraft and Wrench cases. Johnson’s success was largely overlooked.

FCA Announcement

Yesterday afternoon, the Financial Conduct Authority confirmed that it will be launching a formal consultation on an industry-wide scheme to compensate motor finance customers who were treated unfairly. This is a major development — and one that significantly strengthens the position of claimants.

This means that the FCA will require the lenders to pay compensation,with the question now moving onto, at what level, and for what type of arrangements, as part of answering the question as to what is “unfair”.

Based on the announcement, and the above, it seems clear already that the FCA will propose a compensation scheme that covers discretionary commission arrangements (DCAs) where these were not properly disclosed.

In light of the success in the Johnson case, it also now seems possible that the FCA will include non-discretionary commission arrangements where the terms were nonetheless unfair. This means that fixed commission arrangements may also fall within scope, depending on the circumstances.

What’s Next

The FCA has said that it will present for consultation its views on what a redress scheme should look like by early October.

In the short term, we will therefore focus on presenting arguments to the FCA that under-pin a robust view on what should be viewed as“unfair”. Even though this will depend on the facts of each individual case certain themes are likely to be common – some examples of these being:

• The size of the commission or the level of increased interest rate paid,
• How was the purpose of the commission presented;
• Were the communications clear and understandable
• Were related party relationships properly disclosed
• As part of giving general advice was preference given to certain products for financial gain

Alongside this we will also be looking at how to substantiate what an appropriate interest rate should be to add to any compensation, as the FCA is likely to try and make this as low as possible.

So despite some reports suggesting lenders are “in the clear,” we think this is not the factual reality, and the FCA has substantiated this by announcing that there will be a redress scheme.

The focus therefore now shifts to the FCA’s consultation,and we are continuing to engage with the FCA and other stakeholders to help shape the outcome.