On 2 August 2025, the UK Supreme Court delivered its long-awaited judgment in the motor finance commission litigation, significantly narrowing the scope of consumer claims against lenders and dealerships. The decision provides welcome clarity for the automotive finance industry, though residual regulatory risks remain.
Background
The case centred on the legality of commission payments made by motor finance lenders to dealerships acting as credit brokers. These commissions, often undisclosed to consumers, were frequently structured under discretionary commission arrangements (DCAs), which allowed brokers to adjust interest rates to increase their remuneration. The Financial Conduct Authority (FCA) banned DCAs in 2021, citing concerns over consumer detriment.
Three claimants alleged that their finance agreements were unfair under section 140A of the Consumer Credit Act 1974 due to undisclosed commissions. The Court of Appeal had previously ruled in favour of the claimants, prompting widespread speculation about industry-wide liability and potential compensation exceeding £40 billion.
Supreme Court judgment
The Supreme Court reversed the Court of Appeal’s decision in two of the three cases. It held that the mere non-disclosure of commission payments does not, in itself, render a credit relationship unfair. The court emphasised that unfairness must be assessed holistically, considering the nature of the relationship, the conduct of the broker, and the terms of the agreement.
Only one claimant, Mr Marcus Johnson, succeeded. The court found that the lender’s failure to disclose a £1,650 commission payment created an unfair relationship in the specific circumstances of his case. However, the ruling makes clear that such outcomes will be fact-specific and not indicative of systemic unfairness.
Implications for dealerships and lenders
- Reduced litigation risk: the judgment significantly limits the scope for consumer redress through the courts. Dealerships and lenders are unlikely to face mass litigation based solely on non-disclosure of commissions.
- Regulatory exposure remains: despite the legal clarity, the FCA continues to investigate historic motor finance practices. It is expected to consult on a redress scheme by October 2025, with potential payouts commencing in 2026. The FCA estimates total compensation could reach £13.5 billion, though individual awards are likely to be modest.
- Compliance and disclosure: firms should continue to review their historic commission arrangements and ensure full transparency in current practices. While DCAs have been banned, legacy arrangements may still attract scrutiny under the FCA’s consumer protection framework.
Implications for consumers
- Limited judicial recourse: most consumers will not be eligible for compensation through the courts following this ruling.
- Potential FCA redress: consumers affected by DCAs may still qualify under the FCA’s forthcoming scheme. Eligibility criteria and claims processes are expected to be published later this year.
Conclusion
The Supreme Court’s decision provides much-needed certainty for the motor finance sector, curbing the threat of widespread litigation. However, dealerships and lenders must remain vigilant as the FCA prepares to launch its redress scheme. Firms should proactively assess their exposure and engage constructively with the regulator to mitigate reputational and financial risk.
For more information, please contact our Automotive Team at Birketts. Our dedicated Automotive specialists have specific expertise in this are and would be pleased to support you.
Key Contacts
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2025.