Reaction to the Supreme Court’s verdict

The Supreme Court has reversed very significant – and substantial – elements of the Court of Appeal ruling which shook the auto finance industry to its core in October last year. Immediate reactions suggest the number of claims for compensation are set to be much smaller than anticipated, lessening the impact on lenders, although there are still likely to be issues around finance agreements which are deemed “unfair”.

Reports a week ago suggested the Treasury – which sought and failed to obtain permission to intervene in the Supreme Court hearing – was on standby to intervene if the Supreme Court upheld the Court of Appeal ruling, on the grounds that the flood of compensation claims which would follow could pose a risk to the financial markets’ stability.

In the event, a Treasury spokesman put out a statement immediately after the verdict saying: “We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers.

 “We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act.

“These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly.”

Stephen Haddrill, Director General of the FLA, described the judgment as “an excellent outcome”, a view which was endorsed by Richard Barnwell, a Financial Services Advisory partner at BDO who said it marked “a major milestone for the sector and will come as a partial relief to motor finance firms”.

In the run-up to the verdict, financial analysts’ predictions of the likely compensation bill facing lenders rose as high as £44 billion, while Moody’s estimated the hit could be around £33 billion.

“We believe there is still a potential for redress, for example, if discretionary commission arrangements are deemed to be an unfair relationship, redress could still be from £5billion – £13 billion or more. There is a lot to work through, but it is significant that the court has decided there can be no fiduciary relationship in this market.

 “There is much to digest, however markets, firms and consumers all need certainty about the next steps, and we will look forward to receiving the Financial Conduct Authority’s proposals.”

 The FCA has previously said that it would consult on the design of a redress scheme within six weeks of the Supreme Court’s decision being published.

Consumer Intelligence calls for a pragmatic and orderly process to be established by the Financial Conduct Authority (FCA).

Ian Hughes, CEO of Consumer Intelligence, which provides data and governance services to the insurance sector, said: ““It is crucial to remember that this is a consequence of legacy practices from a minority of market participants. We urge the FCA to work closely with the industry to design a redress framework that is manageable, efficient, and minimises undue market disruption.”

“The Court got it right—they’ve targeted the exceptional cases without punishing standard business practices. This provides the clarity the industry needed whilst ensuring accountability where it’s genuinely warranted.”

“It’s vital we don’t confuse widespread historic practice with deliberate wrongdoing. The vast majority of firms operated fairly, even if disclosure clarity fell short. Targeted, structured redress will ensure fairness without punishing responsible firms. It’s important to remember the industry had already moved away from discretionary arrangements following FCA rule changes in 2021. This ruling effectively tidies up the legacy.”

Stephen Bassett, AFC asset finance community leader and chair of the Guild of Business Finance Professionals, pointed out that the Supreme Court decision vindicated earlier decisions in a string of country court cases.

“In my opinion, the Supreme Court’s ruling lays bare the Financial Ombudsman Service’s misunderstanding both of its own role and its target market. It also shows that CMCs and some advisors should now learn not to jump the gun, not to scaremonger so much and not to waste so many peoples time and money.  Overall, common sense has prevailed at last.”

AFC/Shoosmiths webcast

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.

Any readers who have questions they would like to put to our panel of experts about the judgment should email edwardpeck@finance-connect.com. All questions need to be submitted by end of day on Sunday.