Supreme Court brings clarity, FCA brings confusion

Summary

Just 72 hours after the Supreme Court’s landmark ruling on motor finance commission disclosure, and barely 24 hours after the FCA’s surprise redress scheme announcement, leading figures from the asset and auto finance sectors came together on Monday for a fast-paced, insight-rich webcast hosted by Asset Finance Connect and Shoosmiths, sponsored by Odessa.

Moderated by David Betteley, head of auto finance at Asset Finance Connect, the panel featured Wayne Gibbard, partner at Shoosmiths and AFC’s legal adviser; John Phillipou, chair of the Finance & Leasing Association (FLA); and Ian Plummer, commercial director at Autotrader.

In a session that mixed sober analysis with clear frustration, the webcast explored the death of fiduciary duty, unfairness thresholds, the FCA’s rushed redress scheme, and implications for other finance sectors.

Supreme Court: clear on duty, careful on unfairness

Wayne Gibbard provided a comprehensive review of the Supreme Court’s ruling on three key cases. He noted how the Supreme Court rejected the controversial findings of the Court of Appeal, most notably that motor finance brokers owed a fiduciary duty to consumers in tripartite arrangements between dealer, lender and customer.

The Supreme Court clarified that:

• No fiduciary duty arises in a broker-dealer-consumer structure.
• No bribery occurred, as no fiduciary or disinterested duty was owed.
• Unfairness, however, did arise in Mr. Johnson’s case due to high commissions, misleading documentation regarding disclosure, and his financial naivety.

Focusing on the Johnson case, the Supreme Court found an unfair relationship under Section 140A of the Consumer Credit Act, highlighting key concerns that cannot be overlooked. The decision rested on three specific factors: the high size of the commission, a misleading element in the suitability document implying dealer impartiality, and Mr Johnson’s limited financial sophistication. However, the Court stopped short of setting a broader precedent. This means the ruling cannot be automatically applied to other cases – each must be assessed on its own individual facts and context.

Gibbard praised the Supreme Court’s detailed reasoning: “The Court gave a very helpful and detailed breakdown… bringing great clarity and certainty in their findings.”

FCA statement: clarity undone by confusion
However, Gibbard noted that the FCA’s Sunday announcement about a redress scheme – backdated to 2007 – created uncertainty, contention and industry-wide anxiety following the Supreme Court ruling.

John Phillipou was blunt in his critique: “Going back to 2007 is practically impossible… under GDPR, why would anyone keep data that long?”

In their announcement, the FCA also noted that the scheme will apply to both DCA and non-DCA commissions, despite the Johnson case (which prompted much of the debate) not involving DCA arrangements.

A poll conducted during the webcast showed that 92% of attendees felt the FCA’s announcement raised more questions than it answered. Phillipou highlighted the confusion, pointing out that the FCA is now labelling firms as unlawful, despite the fact that those firms were, at the time, acting in line with the FCA’s own rules.

The biggest question remains: How can the FCA fairly implement a scheme that relies on data many firms no longer hold, and which predates its own regulatory oversight (pre-2014)?

Unfair relationships: still a murky area

With fiduciary duty off the table, attention has turned to unfairness, a more subjective standard. The panel emphasized that unfairness cannot be assessed in bulk. It is fact-specific, case-by-case, as highlighted by the Supreme Court ruling.

John Phillipou emphasized that a blanket redress scheme was not the intention of the Supreme Court as it is not legally or practically viable, while Ian Plummer noted that more clarity is needed around what constitutes an unfaircommission – what’s fair, what’s not – as that line is blurry at the present time.

Beyond auto: read across to asset finance and other sectors

The ruling’s implications may not be confined to the consumer motor finance space. Commercial and asset finance brokers are watching closely.

Wayne Gibbard pointed out that while fiduciary duty is not relevant in the typical auto finance scenario, it could arise in single-agent relationships in other sectors in the financial services ecosystem. The industry needs regulatory clarity on how the judgment affects commercial broking and asset finance arrangements.

John Phillipou warned against regulatory “one size fits all” thinking: “Asset finance is a different world, applying consumer rules here would hurt the economy.”

The road ahead: rebuilding trust and preparing for October

The FCA’s consultation period ends in October, and if implemented, redress payments would start in early 2026. Until then, firms are navigating a difficult in-between period, seeking clarity on data handling, customer sophistication, and compliance expectations.

Plummer urged the sector to use this moment to build consumer trust: “The FCA must balance consumer protection with economic growth. The industry needs to come together to push the transparency agenda forward.”

Despite the legal drama that has been unfolding since the Court of Appeal’s decision in October 2024, Autotrader’s metrics have showed no negative consumer reaction, a sign that public trust can still be retained.

Conclusion: judgment day, but not the final word

The Supreme Court has delivered a well-reasoned, fact-sensitive ruling that strips away legal uncertainty, especially around fiduciary duty. But just as clarity emerged, the FCA’s weekend statement muddied the waters, creating confusion over the scope, structure, and feasibility of redress.

As Gibbard summarised perfectly: “The grace and the splendour of the narration made by the Supreme Court in explaining and navigating these complex issues now seems to have been graffitied in spray paint on a wall in a rather hastily made statement.”

Watch the full webcast on-demand here.