Supreme Court Clarifies Secret Commission Claims and Unfair Relationships in Car Finance

The cases of Hopcraft and another (Respondents) v Close Brothers Limited (Appellant); Johnson (Respondent) v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant); Wrench (Respondent) v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant) [2025] UKSC 33 were conjoined and heard in April 2025.

The cases consider the position for consumers who purchased cars on finance from dealers where the dealers received significant commission from the lenders of which the consumers were not aware; the claims made by the consumers specifically related to bribery, breach of fiduciary duty and a breach of s140A of the Consumer Credit Act 1974 (“the CCA”) as a result of an alleged unfair relationship.

In each case, the consumer purchased a car utilising a finance agreement which was proffered by the dealership but financed by a lender.

As is usual in such circumstances, the consumer’s financial means information was given to the lender, via the dealer, and an offer of finance was then made from the lender to the consumer, via the dealer.

The consumer agreed to the terms of the hire purchase agreement and the dealer sold the lender who leased the car to the consumer.

In each case the lender paid the dealer a sum of commission when the consumer agreed to the lenders’ terms.

The Court of Appeal’s judgment (October 2024)

the Court of Appeal found in the favour of the consumers, unanimously.

It held that the dealers were acting as credit brokers for the consumers, owing them   duties, and as such there was a conflict of interest in relation to commission given the consumers had not consented to the commission payments paid by the lenders to the dealers. The payment of the commission constituted a bribe. Where there had been disclosure of the fact that commission might be paid, but not of the amount of the commission (“half secret” commissions) the broker/dealers had breached their duty to the consumer in accepting that commission without the consumer’s fully informed consent.  And the lenders had dishonestly assisted that breach.   The agreements were also unfair credit relationships due in part to the payment of commission and as such claims existed under section 140 A of the CCA.  

As a result of the Court of Appeal decision, the lenders were held liable to pay the amount of the commissions, plus interest, to the consumers. The decision came as a shock to the car finance industry with financial meltdown widely predicted for the motor finance industry, a market where approximately 2 million customer a year rely on motor finance with lending of some £40 billion.     

The lenders all appealed to the Supreme Court.

The Supreme Court judgment – 1 August 2025 

In its judgment – which unusually was handed down at 16:35 on 1 August 2025, deliberately after the UK financial markets had closed – the Supreme Court upheld all the lenders’ appeals.

It held that car dealers arranging finance are not fiduciaries of the customer, rather they were acting on an arm’s length basis, pursuing their own commercial interest of selling a car. Therefore, undisclosed commissions paid by lenders to broker/dealers do not automatically constitute unlawful secret commissions or bribes (as the Court of Appeal had decided). The absence of any fiduciary duty was also fatal to the claims for dishonest assistance in a breach of such a duty.

The claim made by Mr Johnson under section 140A of the CCA was in fact upheld by the Supreme Court, although the Supreme Court emphasised that the question of whether a relationship is “unfair” is highly fact sensitive.

Under section 140A of the CCA, it was necessary for the Supreme Court to consider a number of different factors in relation to the allegedly unfair relationship between Mr Johnson and FirstRand Bank Limited.  The Supreme Court held that these factors included “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; the extent and manner of the disclosure (including by the broker insofar as section 56 is engaged); and compliance with the regulatory rules”.

It was held that the relationship between Mr Johnson and FirstRand Bank Plc was unfair in all circumstances, with the Supreme Court stating that the amount of commission was a “powerful indication” of the unfairness of this relationship.  The dealer received £1,650.95 in comparison to the total charge to Mr Johnson for that credit (interest and fees) of £3,023.20 So 55% of the amount that Mr Johnson was charged for his finance went on commission to the dealer. 

FirstRand was required to repay the commission, in its entirety, plus interest back to Mr Johnson.

Commentary

Why was this judgment so eagerly anticipated?

As a result of the Court of Appeal judgment, potential floodgates were opened to significant numbers of consumers pursuing claims against lenders for practices which had been commonplace in the motor industry for years. There was also the possibility of wider application/read across of certain aspect of the Court of Appeal’s judgment beyond the car finance industry, especially the conclusion that the payment of commissions without full disclosure to the consumer constituted bribes paid by the lender to the brokers.  Brokers relationships remunerated by commission are not of course limited to the car finance industry but are commonplace elsewhere.   

That the majority of the claims were dismissed by the Supreme Court will therefore have provided relief to lenders and others in the financial services industry, however the success of Mr Johnson’s claim relating to the CCA, amongst other factors, required the Financial Conduct Authority (“FCA”) to swiftly consider a redress scheme for other motor finance consumers.

The potential financial fall out from this judgment had the consumers been successful in all claims would have involved sums akin to the money banks were required to pay out following the Payment Protection Insurance (“PPI”) scandal with estimates placing the sums motor finance lenders could have been liable for in the region of £44bn.

Lenders will no doubt be feeling some relief as a result of the judgment, however the FCA redress scheme has only just been announced and so we wait and watch to see the full effect of this judgment on the industry.  Although the devil will inevitably be in the detail, we will look at what we know about the redress scheme in a separate article.