The Supreme Court hears motor finance test case

04 April 2025

This week the Supreme Court heard the appeal against the Court of Appeal’s decision regarding the payment of commission by motor finance lenders to car dealers.

This is an appeal of the decisions in three test cases, Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd, (Test Cases). The Court of Appeal’s decision last year came as a major shock to industry resulting in a range of actions including lenders provisioning funds to cover potential compensation costs and, for some, a halt to underwriting new motor finance.

Given the need for certainty in this sector, the Supreme Court expedited the hearing which lasted three days this week. The hearing included submissions from both the Financial Conduct Authority (FCA) and the National Franchised Dealers Association, which were granted permission to intervene by way of written and oral submissions. The FCA makes clear in its written submissions its view that the Court of Appeal went too far in treating motor dealer brokers as owing fiduciary duties. However, the FCA weaves a careful middle path and also warns the courts against a blanket acceptance of the lenders’ submissions.¹The FCA noted that the unfairness of commission arrangements for the purposes of section 140A of the Consumer Credit Act 1974 (CCA) may depend on factors such as the size of the commission, its nature as a discretionary commission arrangement (DCA) or non-DCA, potential customer vulnerability, the extent and manner of disclosure to the customer, and compliance with regulatory rules and principles. Applications to intervene by Consumer Voice & Others, the Finance and Leasing Association and His Majesty’s Treasury were notably refused.

Although a decision is expected early summer, the judgment is unlikely to be binary and a range of potential outcomes is possible. This is compounded by the fact that the Test Cases are based on lending which took place prior to a number of regulatory initiatives and interventions from the FCA and the Courts and because the judgment will be relevant to both DCAs and non-DCAs.

We set out below a brief timeline of the regulatory developments impacting motor finance providers.

March 2019. The FCA published a report on its work reviewing motor finance. The FCA found that the way commission arrangements were operating in motor finance may be leading to consumer harm on a potentially significant scale. In particular, the FCA found that the widespread use of commission models which allow brokers discretion to set the customer interest rate, to earn higher commission, can lead to conflicts of interest which are not controlled adequately by lenders. The FCA confirmed that it had started work with a view to assessing the options for policy intervention in relation to commission arrangements.²
July 2020. The FCA announced its ban on DCAs in motor finance markets to remove the incentive for brokers to increase customer interest rates. The FCA also announced new rules regarding the disclosure of commission models which required the nature of commission to be disclosed. The FCA estimated at the time that banning discretionary commission models would save motor finance consumers around £165m a year.³
January 2021. The ban on DCAs in motor finance and the commission disclosure changes came into effect.
July 2023. The Consumer Duty applied to all new product and services from July 2023 including motor finance.
December 2023. The FCA confirmed that at the beginning of December 2023 approximately 10,000 motor finance commission complaints had been referred to the Financial Ombudsman Service (FOS) of which over 90% were referred since the start of 2022.⁴
January 2024. The FCA announced implementation of temporary complaint handling rules for complaints about motor finance agreements involving a DCA and review of historic DCAs. These rules were implemented without consultation in reliance on Section 138L of the Financial Services and Markets Act 2000 following a high number of complaints claiming compensation from motor finance firms. The rules paused for a period of 37 weeks the requirement that firms must, within eight weeks of receipt, respond to DCA complaints and give complainants the right to refer their complaint to the FOS. The rules also extended the time limit for referring DCA complaints to the FOS from six to 15 months where the firm sent its final response within the timeframe specified in the rules. The FCA confirmed it would use the 37-week pause to:
- carry out diagnostic work to assess whether the sales of motor finance agreements involving DCAs fell below applicable regulatory and legal standards, resulting in consumers being owed redress; and
- if necessary, determine if the FCA should intervene to provide redress.

The FCA announced its plan to communicate a decision on next steps at the very latest by 24 September 2024 (the day before the pause to complaint handling time limits is due to end).⁵

April 2024. Clydesdale Financial Services Limited, trading as Barclays Partner Finance commenced judicial review proceedings of a FOS decision to uphold a complaint relating to its use of a DCA (Judicial Review). The FOS had found in favour of a borrower on the grounds that a Court was likely to conclude that the relationship between the parties was unfair under s.140A CCA as a result of inadequately disclosed commission arrangements.⁶
April 2024. The FCA wrote to firms setting out their expectations for assessing and maintaining adequate financial resources taking into consideration the need to meet potential future liabilities that may arise from the historic use of DCAs. The FCA also reported on progress of its DCA review. The FCA commented that whilst many firms were engaging constructively, they were struggling to promptly provide the data required.⁷
May 2024. The FOS updated customers that it was unlikely to issue final decisions on affected DCA complaints pending decisions in both the Judicial Review and the Test Cases.⁸
July 2024. The FCA gave an update on its DCA review and issued a further consultation to extend the pause on complaints handling to allow the FCA further time to complete its review. The FCA proposed to extend the pause on the requirement for firms to provide a final response to DCA complaints and the right to go to the FOS within eight weeks until 4 December 2025. On redress, the FCA acknowledged that “It is too early to say whether any redress intervention will be necessary, not least one that would require this amount of time, but based on our work so far we think it is more likely than when we started our review.” On timing, the FCA confirmed its intentions to set out next steps in its review into the past use of DCAs in May 2025.⁹
September 2024. The FCA extended the pause on complaints handling in accordance with its July consultation and again confirmed its intention to set out next steps on the past use of DCAs in May 2025. The FCA also confirmed it was awaiting judgment from the Court of Appeal in respect of the Test Cases, which in addition to the Judicial Review case would impact its approach.¹⁰
October 2024. The Court of Appeal handed down its decision in the Test Cases. The Court found that it was unlawful for car dealers to receive a commission from a lender providing motor finance to a customer, unless it was properly disclosed to the customer, and they gave informed consent to the payment. Whilst the decision sent shockwaves round the industry, the Court of Appeal judgment itself alluded to the likelihood of appeal and acknowledged that a definitive pronouncement by the Supreme Court may be desirable.
November 2024. The FCA issued a consultation on implementing temporary complaints handling rules to extend the time firms have to respond to motor finance complaints where a non-discretionary commission arrangement was involved. The FCA confirmed that its consultation followed the Court of Appeal’s decision in the Test Cases and its concern that firms which provide motor finance are likely to receive a high volume of complaints in response to the judgment.¹¹
December 2024. The FCA issued a policy statement to implement temporary complaints handling rules for non-discretionary commission arrangements. These rules have the same effect as the rules extending the complaints period for DCAs. This means that firms do not have to provide final responses to motor finance non-DCA commission complaints received on or after 26 October 2024 until after 4 December 2025.¹²
December 2024. The High Court handed down its decision in the Judicial Review. The High Court found in favour of the FOS on all grounds. It was held that the FOS was entitled to find that the commission arrangements were not adequately disclosed to the customer and consequently the relationship was unfair for the purposes of section 140 CCA. However, permission to appeal to the Court of Appeal was granted.¹³
March 2025. The FCA issued an updated statement setting out timings for a possible redress scheme. The FCA stated it will confirm within six weeks of the Supreme Court's decision on the Test Cases if it plans to implement a redress scheme.¹⁴Please see our article Redress for motor finance claims for more information.