Motor Finance Commission Developments

Claims Management was a burgeoning sector back in the 2010s – PPI proved to be a lucrative period – but when the volume of claims started to dwindle, Claims Management Companies (CMCs) needed to look for their next source of income – and anywhere there is regulatory uncertainty, there’ll be speculative claims.

In November 2014, the Supreme Court ruled in Plevin v Paragon Personal Finance Ltd that a failure to disclose to a client a large commission payment on a single premium PPI policy made the relationship between the lender and borrower unfair under s140 of the Consumer Credit Act 1974. Although this decision was based on a different market, CMCs argued a read across to motor finance, and so began a period of intense CMC activity in our market, with increasing volumes of speculative claims made against lenders.

While FLA lenders absolutely support the Financial Ombudsman Service’s (FOS) role of resolving individual disputes between firms and customers, reform is needed.

Over the years, we repeatedly pointed out to regulators and the Treasury the inequity of CMCs being able to submit baseless complaints to the FOS at no cost, while, once that process began, each lender was charged £650, now increased to £680, per claim, regardless of whether they were at fault.

The FOS has confirmed that 90% of recent motor finance complaints have been submitted by CMCs. With its complaints system completely clogged up with speculative claims, the FOS prepared to adjudicate some of those complaints early in 2024.

As an alternative dispute resolution entity, the FOS has a remit to resolve individual complaints based on what it “thinks is fair and reasonable in all the circumstances of the case”.

That means the FOS interprets the Financial Conduct Authority’s (FCA’s) rules and regulations – it doesn’t have to accept the original intent of the rule nor method of compliance by the firm – rather, the FOS decides what should have happened in its opinion and holds the firm to that standard.

So, firms can comply with FCA rules but still fall foul of the FOS’ interpretation of those rules. That introduces additional uncertainty and risk for lenders.

It also means there’s a quasi-regulator operating in the UK market with none of the safeguards observed by the others – no consultation process for changes, no cost/benefit analysis, no competition objective, no market integrity objective, and therefore no regard for the effect of its decisions on consumers or the provision of finance.

With complaints stacking up at the FOS, the FLA spoke to both the FCA and HM Treasury on numerous occasions, urging their intervention to prevent an alternative dispute resolution entity from becoming the architect of an entirely new interpretation of existing rules.

The FCA stepped in with a pause on discretionary commission complaints handling, pending its own review of whether customers had been overcharged because of the use of discretionary commission agreements.

While this work was going on, the lower courts too saw their fair share of cases as CMCs explored every avenue in pursuit of income. The vast majority were dismissed, but three were collated into one hearing at the Court of Appeal (CoA) in July 2024.

The CoA was asked to establish if any fiduciary duty was owed where a commission had been paid to a dealership which had arranged for its customer to enter into a finance agreement with a lender.

FCA rules assumed that a fiduciary duty did not exist in the motor finance market, but when the CoA judgment was handed down on 25 October 2024, the court did indeed find that fiduciary duty was owed by dealers. This went significantly beyond the existing interpretation of the law, and FCA rules, with respect to how commission is paid to car dealers.

So, the £80 billion-plus motor finance lending market that had relied in good faith on FCA rules found them to be insufficient to comply with the law.

In the hours and days after the CoA judgment, some FLA members stopped commission payments, others paused lending until they could update their systems to accommodate the two key requirements of fiduciary duty – firstly, that the amount of commission had to be prominently disclosed to the customer, and secondly, that there needed to be informed consent by the customer for the intermediary to receive the commission.

We welcomed the FCA’s decision to consult on extending the response time on non-discretionary commission consumer complaints – it’s a move we had discussed with them. We also said that restoring legal and regulatory certainty to this market will require an expedited path to the Supreme Court. This was achieved as the case was heard in April 2025.

On 14 November 2024, the Chancellor’s first Mansion House speech announced the reform of the FOS, including the need for clearer expectations on how it cooperates with the FCA, and how historic market practice and mass redress events are dealt with.

The next day, a joint call for input was published by the FOS and FCA on modernising the redress system. The FLA’s response states that the FOS has evolved away from the type of alternative dispute resolution body that Parliament originally intended it to be.

Our recommendations include replacing the FOS’ ‘fair and reasonable’ test with a requirement to apply the laws, regulations, rules and guidance that were in place at the time of the act or omission mentioned in the complaint.

We also want to see the precedent effect of FOS’ decisions removed as these are completely uncosted and imposed on the industry without consultation and therefore no way to ensure that unintended consequences have been addressed.

In addition, the 8% simple annual interest applied to FOS decisions is now incongruous as a realistic level of forgone savings interest that could be achieved in the current market. The FOS should use the same approach as the Court – a commercial rate of interest.

On 17 February 2025, it was confirmed that the FCA and the National Franchised Dealers Association (NFDA) had been granted permission to intervene in the Supreme Court case. Our application, and that of HM Treasury, were declined, and while this is disappointing, we understood the Supreme Court’s position – a lot of interested parties and only a three day hearing. It was reassuring that a balance of parties were represented at the hearing, including two FLA member firms.

Between 1-3 April 2025, the motor finance commissions case was heard at the Supreme Court, with the following issues examined:

• When acting as credit brokers, do car dealers owe consumers a “disinterested” and/or fiduciary duty to provide information, advice, or recommendation?

• If so, were the payments of commissions by the lenders to the car dealers secret such that the lenders become primary wrongdoers?

• Can the lenders be liable in the tort of bribery? If so, what is the correct approach to remedies?

• If there was sufficient disclosure of the commission to negate secrecy, was there insufficient disclosure to procure the consumers’ fully informed consent to the payment, such that the lenders are liable as accessories for procuring the credit brokers’ breach of duty?

• Can insufficient disclosure also suffice to make the relationship between lender and consumer “unfair” for the purposes of the Consumer Credit Act 1974?

In terms of the running order, Appellants set out the bulk of their case on Day 1, and on Day 2 the NFDA made its submission as an intervener, followed by the Respondents setting out their case. Respondents continued on Day 3 followed by the FCA, the other intervener.

At the conclusion of the case, it was stated that July 2025 would be realistic for the Supreme Court judgment.

Judgment was eventually handed down at 4.35pm on 1 August to avoid market disruption.

The Supreme Court found that no fiduciary duty was owed by a motor finance dealer to the customer, therefore claims made under that issue would not succeed. Because no fiduciary duty was owed, claims under the tort of bribery would also not succeed.

In our response, we welcomed the judgment, saying that it properly reflects the role and responsibilities of dealers, lenders and customers, and restores certainty and clarity to the largest point-of-sale consumer credit market in the UK.

However, in the Johnson case, the Court found that the relationship between Mr Johnson and FirstRand was unfair under section 140A of the Consumer Credit Act.  Their reasons for this finding were different to the Court of Appeal – particularly the size of the commission which was 55% of the total cost of credit.

The FCA previously said that it would confirm within 6 weeks of the Supreme Court decision  whether or not to propose a redress scheme.

Their decision was issued on Sunday 3 August 2025, with costs estimated to lie between £9bn to £18bn, and the detailed consultation followed in early October. Instead of the usual 3 month duration, the FCA opted for 6 weeks, subsequently extended to 9 weeks.   Our comment related to this extension is here.  

The FLA submitted its response to the consultation on 12 December 2025.

The central points to our submission were that any scheme must:

• Identify and compensate only those consumers who have actually suffered loss;

• Protect consumers’ long-term access to affordable credit;

• Avoid awarding redress where no unfair relationship arose – a practice that would undermine fairness and damage confidence in the system; and

• Be operationally deliverable within a realistic implementation period.

On 4 March 2026, the FCA announced its intent for any redress scheme to have a streamlined consumer journey and to be smoother for firms to operate – including through an implementation period of 3 months, with up to 5 months for older agreements. 

The final redress framework was subsequently published on 30 March 2026, following which the FLA undertook a detailed review of the FCA’s proposed scheme, in close consultation with our members, internal and external economists and legal counsel.

As a result of this review, we continue to have concerns about aspects of the scheme, but our priority is that a practical solution be reached that ensures timely compensation for consumers while giving the motor finance industry and the wider market clarity and finality on this issue.

For these reasons, the FLA has confirmed that it will not be challenging the FCA’s current scheme. We will continue to engage constructively with the FCA and other stakeholders to support our members with the effective implementation of the scheme.