Peter Vosper: Supreme Court secret commissions

In the motor finance context, the Supreme Court found that car dealers did not owe a fiduciary duty of loyalty to their customers when providing a credit brokering service for car finance.

A fiduciary duty of loyalty to their customers was an essential requirement for the claimants’ claims in the tort of bribery and for dishonest assistance, and therefore all such claims failed.

The Supreme Court found in one case (Johnson), the lender was liable to the customer because the relationship had been “unfair” within the meaning of s.140A Consumer Credit Act 1974 (“CCA”). This brings scope for customers to bring similar claims against lenders depending on the facts of their individual case.

Following the judgement, on Sunday, the FCA announced it will consult on a compensation scheme for motor finance customers, with such a scheme to be in place by 2026. The consultation will cover how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of the proposed scheme and, if so, what compensation should be paid.

The FCA have confirmed that the redress scheme should cover agreements back to 2007, to be consistent with the complaints that the Financial Ombudsman can consider and to ensure the scheme is comprehensive. This would mean consumers would not need to use other routes to secure compensation and prevent large numbers of ongoing disputes in the courts.

The FCA currently estimates that most individuals will probably receive less than £950 in compensation. The FCA expects a healthy finance market for new and used cars to continue notwithstanding any redress scheme.

The judgement will be a setback for claims management firms (CMFs) and their funders. CMFs will not welcome the FCAs announcement above regarding the consumer redress scheme. Lord Reed, in delivering the judgement, criticised CMFs for encouraging claimants to sign up with them between the Court of Appeal and the Supreme Court’s decisions, when the relevant law was still in flux.

This criticism potentially provides a platform for customers to exit their agreements without charge, allowing them to participate in any redress scheme for free.

The Supreme Court held that since the dealers did not owe a fiduciary duty to the customers, the lenders could not be liable for dishonestly assisting in a breach of fiduciary duty.

This judgement is a welcome outlook for motor finance lenders, as it alleviates the risk of bribery and secret commission claims. These claims could have been extensive, applying to all commission arrangements (both discretionary and fixed rate) and potentially affecting their “back book” over many years with more uncertain remedies.

Look out for the FCA redress details in 2026.