The Supreme Court’s dismissal of fiduciary duty claims has narrowed legal exposure for motor finance lenders, but the operational burden is only beginning. With the FCA preparing a sweeping redress scheme covering historic discretionary commission arrangements, banks and brokers now face the challenge of unpicking years of legacy data, contracts, and consumer interactions — often dating back to 2007.
Legal experts say the UK Supreme Court has handed down one of the most consequential rulings for the motor finance industry in years — dramatically reducing the scope of legal liability for firms involved in discretionary commission arrangements (DCAs), while leaving the door open for regulatory redress on a vast scale.
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Announced on 1 August, the judgment in a trio of linked cases — Johnson v FirstRand Bank, Wrench v FirstRand Bank, and Hopcraft v Close Brothers — determined that motor dealers arranging finance do not owe a fiduciary duty to consumers, even when they fail to disclose commission arrangements. Observers say this wipes out a key legal argument underpinning many of the thousands of historic motor finance complaints lodged in recent years.
The Financial Conduct Authority (FCA) has since announced plans for a much smaller redress scheme, that could ultimately cost lenders between £9 billion and £18 billion.
Banks avoid worst-case scenario, but not cost-free
According to Fitch Ratings, the Supreme Court ruling “materially reduces the potential scope of consumer redress for UK banks,” especially since it rejects the fiduciary duty argument. Large-scale claims based solely on the non-disclosure of commissions are now unlikely to have legal traction.
However, this doesn’t mean banks are off the hook. The FCA has already confirmed it will launch a consultation this October on a sector-wide redress scheme. The scheme would require lenders to reassess complaints relating to DCAs issued between 2007 and 2021 and compensate customers for overcharging — plus interest.
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By GlobalDataFitch estimates that of the £9–18 billion in potential costs, £5–11 billion may fall on banks, with the rest borne by non-bank lenders such as car manufacturers’ captive finance arms. While Fitch says this is largely “absorbable from earnings or actions already taken,” it expects banks will need to increase the £2 billion in redress provisions they’ve already set aside.
The rating agency adds that the financial impact is unlikely to be evenly distributed, since lenders had differing commission structures, sales volumes and documentation quality during the review period.
Legal clarity, but operational complexity ahead
From a legal standpoint, experts broadly welcomed the clarity provided by the ruling.
Jonathan Butler, legal counsel to the Vehicle Remarketing Association (VRA) and a partner at Geldards, highlighted three practical implications for motor retailers and lenders. “Firstly, we shouldn’t lose sight of the fact that this is good news,” he said. Potential exposure is “well below the largest forecasts,” with many claims likely capped at under £950.
Secondly, he stressed that firms can now begin assessing their risk. “They should be tracking down all relevant paperwork dating back to the 2007 cut-off point… If it clearly explained that a commission was due and they can show the level was less than 55%, they roughly know the maximum that will be payable.”
Butler’s third point is more of a warning: firms must scrutinise old contracts with finance providers to check for indemnity clauses. These sometimes required dealers to cover the cost of customer claims — and may now be enforceable.
He also cast doubt on the practical viability of the FCA’s redress model: “The Johnson-type threshold is actually a value judgment… These are highly fact sensitive matters. It needs qualified people to make assessments… It’s far from clear how the FCA envisages this working in the real world.”
The legal profession weighs in
Across the legal sector, most commentary saw the judgment as a partial win for the industry, but not a clean slate.
Tim West, dispute resolution partner at Ashurst, said the ruling clarifies that claimants now face a higher bar to prove dealers owed them an undivided duty of loyalty. “This will make motor finance claims based on undisclosed commissions more difficult to bring,” he said. However, he added that the door remains open to unfair relationship claims under the CCA, where commissions were particularly large or hidden.
Lorraine Johnston, Ashurst financial regulation partner, agreed. “The decision on Johnson will give the government stronger grounds to progress CCA reform with greater vigour,” she said, adding that the FCA will now likely pursue “a more limited redress scheme” for DCA cases over a defined period.
Steven Francis of Faegre Drinker described the ruling as a “real vindication” for lenders, given the rejection of fiduciary duty arguments. But he warned: “The Supreme Court also found that the relationship [between Mr Johnson and FirstRand] was unfair… The importance of this should not be overlooked.” That aspect, he said, would require lenders to revisit their historic practices.
Richard Coates, head of automotive at Freeths, reinforced the point: “The judgment opens the gateway for consumers to bring claims under the Consumer Credit Act, where particularly large commissions have been paid.”
Mixed reactions from consumer law firms
Unsurprisingly, law firms representing consumers saw the decision differently.
Coby Benson, solicitor at Bott & Co, called it a “serious setback for financial justice” and warned it “sends a concerning message to the industry that a lack of transparency can go unpunished.” Nonetheless, he insisted that “we will not stop here,” suggesting new legal arguments may be pursued under the CCA.
Robert Whitehead, chairman of Barings Law, described the judgment as a “major blow to consumer protection” and a missed opportunity for accountability. “Thousands of car buyers were sold finance deals without ever being told that brokers and dealers were pocketing secret commissions,” he said. “It’s disappointing that the Supreme Court has chosen not to hold the industry accountable.”
Operational and reputational consequences
Even if litigation risk has narrowed, the motor finance sector still faces an enormous operational burden, reputational challenges and regulatory scrutiny.
Richard Barnwell, partner at BDO, warned that while fiduciary duty claims have been ruled out, redress for unfair relationships could still reach “£5–13 billion or more.”
Brian Nimmo, head of redress at Broadstone, added that lenders must now “review all of their DCA cases, assess whether they are unfair and then calculate potential redress, which will be a significant exercise.”
Greg Huitson-Little, of Menzies LLP, pointed to the long-term consequences for public trust: “Although the Supreme Court’s decision reverses much of the Court of Appeal’s earlier decisions, the reputational damage is already done… The days of opaque ‘deals’ must come to an end.”
And from a market-wide lens, Ian Hughes, CEO of Consumer Intelligence, summarised the ruling as “clarity the industry needed” but also a call to action. “The industry must meet this challenge constructively… This is a consequence of legacy practices from a minority of market participants.”
Looking ahead
Industry observers say the FCA’s upcoming consultation will be crucial in determining how redress is structured — especially whether it requires consumers to opt in, or whether lenders will be expected to proactively compensate affected borrowers. With final rules not expected until 2026, the industry now enters a period of preparation, calculation and, for many, negotiation over who ultimately bears the cost of past practices.
The legal questions may be answered — but the financial, operational and reputational challenges are only just beginning.
