Fiduciary duty vs. disinterested duty

Friday’s landmark Supreme Court ruling is intended to establish the exact nature of the obligations auto finance lenders, brokers, and car dealers owe to their customers, and to clarify a complex web of relationships and legal and regulatory requirements.  Much hinges on whether car dealers — acting as credit brokers — owed a fiduciary duty or merely a disinterested duty to their customers.

While the two phrases sound similar, there are differences and it is well to have these in mind when the judgment is handed down.

A fiduciary duty is the highest standard of obligation in law. It arises when one party places trust and confidence in another, such as a solicitor, trustee, or financial adviser. Fiduciaries must act solely in the best interests of the person they serve, avoiding conflicts of interest and disclosing all relevant information — including commissions.

If a fiduciary breaches that duty, the law typically provides strong remedies, including the repayment of undisclosed commissions and interest.

In contrast, a disinterested duty is a narrower obligation. It requires a broker to act impartially and without conflict of interest when recommending or arranging a financial product. However, this duty does not necessarily imply loyalty or selflessness. It simply means the broker should not mislead or act with undisclosed bias. Courts may find a disinterested duty exists even where no formal trust relationship arises.

The distinction is significant. The touchstone for identifying a fiduciary is the obligation of loyalty, which means a fiduciary must act in good faith, must not allow a conflict to arise between their interest and that of their principal, and must not act for their own benefit or that of a third person without the informed consent of the principal. Under a fiduciary model, lenders can be held liable as accessoriesfor the dealer’s breach of trust.

However,  if the Supreme Court upholds that only a disinterested duty applies — rather than any fiduciary one — then a lender’s liability becomes far less certain. Consumers might still claim a breach of duty, but the remedies could be narrower, and claims against lenders would face higher legal hurdles.

Muddy waters

However, the way in which this distinction operates when applied to the relationships between auto finance lenders and intermediaries has been much less clear since the Court of Appeal ruling which rocked the asset finance industry last October.

This found that in acting as credit broker, dealers owed a “disinterested duty” to their customers (i.e. a duty to provide information, advice or recommendation on an impartial or disinterested basis). But they also owed in tandem with the disinterested duty an “ad hoc fiduciary duty” to the customers, which required them to act with loyalty and avoid conflicts of interest.

In other words, a fiduciary duty exists in a wider range of circumstances than previously understood.

Another key factor is whether or not the consumer was aware of the existence of a commission payment by the lender to the broker. In two of the three cases under consideration, the commission was judged to be partially disclosed, while in the third it was deemed to be “secret”.

The Court of Appeal found that in circumstances in which the lender has not satisfied itself that the borrower has given their fully informed consent to the payment of commission, there is an accessory liability on the part of the lender because of the existence of the fiduciary relationship.

In providing a ruling on when, and what kind of duty, exists at different points in the auto finance journey, the Supreme Court’s judgement will help define the future of commission disclosure — not only for car finance but across credit markets. Whether a dealer is seen as a trusted adviser or a self-interested intermediary could reshape how brokers operate, how lenders assess risk, and how customers are protected.

That is why we at AFC, along with our legal partners Shoosmiths, are determined to support the asset finance community, with live coverage of the Supreme Court judgment and immediate reaction from our panel of industry experts.

Don’t miss your chance to join the AFC/Shoosmiths webcast, sponsored by Odessa, for the first in-depth and independent analysis of the Supreme Court’s landmark ruling on commission disclosure in auto finance. The 90-minute session begins at 9am on Monday 4^th August and will feature expert insight from leading industry figures and legal professionals. Stay informed with a forensic breakdown of the judgment, its implications for compliance and redress, and what the industry should expect next. Secure your place now by registering here.