60-second primer on commission disclosure and what’s next

In a quiet month for news (ha, only kidding), the auto finance commission cases reviewed by the Supreme Court continue to make the headlines.

The judges brought impressive clarity in their verdicts, but the waters were muddied within 48 hours by the Financial Conduct Authority (FCA), and the reverberations continue to echo around the industry.

For anyone who has been to Mars or in a coma for the past three weeks, the Supreme Court initially appeared to come down on the side of auto finance lenders. The judges ruled that dealer/brokers do NOT owe a fiduciary duty to their customers, a finding that effectively ended two of the cases it was considering.

However, in the third case, which involved Mr Johnson and MotoNovo, the court found that the relationship between the customer and finance company was “unfair” under the Consumer Credit Act 1974.

Its verdict was based on three criteria: in the original finance agreement, the commission represented 25% of the loan and 55% of the total charge for credit; the misleading nature of the dealer’s Suitability Document, which suggested impartiality and access to a panel of lenders, when in fact the dealer was contractually tied to FirstRand; and Mr Johnson’s financial unsophistication.

Expert legal advice suggests that for similar cases to succeed, the following criteria will have to be taken into account: the size of the commission; the nature of the commission; the characteristics of the consumer; the extent and manner of the disclosure; and compliance with the regulatory rules.

This granular degree of detail indicates that Claims Management Companies may not be able to bring class actions, but will instead have to pursue claims on case-by-case basis.

Furthermore, the Supreme Court limited the compensation to Mr Johnson to no more than commission plus interest.

Nonetheless, the FCA swiftly announced plans to launch a formal consultation on a redress scheme for consumers who bought finance without disclosing of commission. The consultation will be published in October, with compensation payments pencilled to start next year. The FCA estimates that most individuals will receive less than £950 in compensation, at a total cost to the motor finance industry of £9 billion to £18 billion.

Car finance lenders had already held fire on increasing their provisions for compensation, and the sector is now primed for a spate of mergers and acquisitions.

The size of the compensation bill that companies face will depend on the start date for any redress scheme. The FCA has set 2007, but the House of Lords financial services regulation committee has already proposed a much shorter six-year timeframe.

Firing an early warning shot, Nikhil Rathi, Chief Executive of the FCA urged lenders to stop “haggling” over compensation, and instead to work towards a fair redress scheme.

For a comprehensive overview of the Supreme Court ruling and its consequences for the industry, watch AFC’s expert webcast or read the webcast review.

In other news, new car registrations dropped 5% year-on-year in July, with electric car buyers delaying purchases until the Government clarifies which EVs will qualify for the new Electric Car Grant. The Times reported that Tesla has almost halved the cost of leasing some of its best-selling electric cars in the UK in an effort to counter a steep sales slump.

The UK’s new light commercial vehicle market also fell by more than 5% in July, its eighth consecutive month of decline.

Fleets have propped up the new car and van markets in 2025, but research from Arval has found that 52% of UK fleets are currently operating second-hand cars and vans, with a further 27% expecting to follow suit within the next three years.

Consumer confidence in the used car market has apparently reached its highest level in a year, according to the latest Startline Used Car Tracker .