In a major legal win for the UK banking sector, the Supreme Court has today overturned a prior 2024 Court of Appeal judgment concerning undisclosed commissions in motor finance deals
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The court ruled that motor dealers do not owe fiduciary duties to customers when arranging car finance, meaning lenders are not automatically liable for undisclosed commissions.
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Only one of the three test cases—Marcus Johnson’s—was upheld on separate grounds under the Consumer Credit Act, indicating limited scope for redress .
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The ruling has dramatically scaled back potential compensation exposure—from estimates between £40–45 billion down to possibly £5–15 billion—reducing fear of a PPI‑sized scandal.
Market and regulatory response:
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Shares in lenders such as Close Brothers and Lloyds surged on relief following the judgment.
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The Financial Conduct Authority (FCA) will now assess whether to propose a redress framework, likely focused solely on cases involving discretionary commission arrangements (DCAs) banned in 2021.
Wider implications:
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The decision effectively narrows redress eligibility to customers whose contracts involved excessive or undisclosed commission tied to interest markup under DCAs.
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While still addressing mis‑selling risks, the verdict signifies a shift away from a broader culture of compensation claims.
Looking ahead:
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The FCA is expected to confirm consultation plans on a targeted redress scheme imminently. Such a programme, if approved, would be unlikely to launch before 2026.
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The UK Treasury, which sought to intervene unsuccessfully, has acknowledged the importance of collaborating with regulators to evaluate impacts on both consumers and businesses.
Summary:
The Supreme Court’s ruling significantly limits banks’ liability over past motor‑finance commission practices, setting a high bar for claims. While redress remains possible in exceptional cases—particularly those involving DCAs—the decision reduces systemic risk for lenders and market instability.
