Court of Appeal Rules in Favour of Consumers in Mis-Sold Motor Finance Commission Claims
On 25 October 2024, the Court of Appeal handed down a landmark decision in three conjoined appeals concerning undisclosed commissions paid by lenders to car dealers in second-hand vehicle finance agreements. The ruling is a significant victory for consumers, with far-reaching implications across the motor finance industry and other sectors that rely on credit brokering.
The Background: Hidden Commissions in Dealer-Brokered Finance
The appeals involved claims brought by consumers who bought used cars using dealer-arranged finance, unaware that the dealers received commission payments from the lenders involved—Close Brothers Ltd and FirstRand Bank Limited (trading as MotoNovo Finance).
The dealers, acting as credit brokers, recommended finance products from a single lender while receiving commission—without disclosing this financial incentive to the consumer. The claimants argued that this conflicted with their duty to act impartially and that the failure to disclose breached fiduciary obligations.
The Court’s Verdict: Non-Disclosure is Unlawful
The Court of Appeal ruled that secret or half-secret commissions were unlawful, holding that:
- Brokers owe fiduciary duties to consumers when arranging finance.
- Informed consent is required for a broker to retain any commission.
- Even relatively modest undisclosed payments (some under £100) could still result in a breach of duty.
This judgment solidifies the legal position that undisclosed car finance commissions violate long-standing common law principles and fiduciary duties. If not overturned by the Supreme Court, it sets a powerful precedent for compensation claims in the motor finance industry—and potentially beyond, including sectors like retail finance, home improvement loans, and property-secured lending.
FCA Under Pressure Following Judgment
The ruling has added renewed urgency to the Financial Conduct Authority’s (FCA) ongoing investigation into commission arrangements in the car finance market. The FCA’s own 2019 report flagged risks that commission models were inflating the cost of finance for consumers, and in 2021, the regulator banned discretionary commission arrangements (DCAs).
The FCA has since signalled that a redress scheme may be introduced, depending on the outcome of this case and its broader investigation. In September 2024, the FCA extended the deadline for its review specifically to take account of the Court of Appeal’s findings.
FCA Chief Executive, Nikhil Rathi, responded to the ruling by stating:
“The judgment is rooted not in FCA rules, but in the long-standing common law principle of fiduciary duty. The broker—in this case, the car dealer—must act in the best interests of the customer and not place themselves in a position of conflict.”
He added that the FCA remains in close contact with firms, lenders, and government, assessing the ruling’s potential market and consumer impact.
Industry Braces for Billions in Payouts
With the Court of Appeal confirming that undisclosed commissions breach fiduciary duties, the motor finance sector is preparing for a potential redress bill in the tens of billions. The fallout has already begun:
- Close Brothers temporarily suspended issuing new car loans and saw its share price plummet by 37%.
- Lloyds Banking Group, which owns Black Horse, has suspended commission payments for new motor finance loans and has set aside £450 million, with analysts predicting it could need £2.5 billion to £3.9 billion in a worst-case scenario.
- The Treasury, FCA, and other stakeholders have held emergency talks to explore potential solutions. Research by RBC Capital Markets estimates that the industry could face up to £23 billion in redress costs.
Kingsnorth Solicitors Welcomes the Ruling
Kingsnorth Solicitors, who represent thousands of clients affected by mis-sold motor finance, have welcomed the ruling as a turning point for consumers.
For years, the issue of whether car finance brokers owed a duty to disclose commission payments was contested. This judgment makes it clear: brokers must be transparent, and failure to inform customers about commissions is a breach of their legal duties.
Importantly, the Court clarified that even small commission sums—ranging from under £100 to over £1,600 in the cases heard—still require full disclosure. The duty to inform customers is not about the amount, but about the existence and nature of the payment.
A Stronger Case for Motor Finance Claimants
For individuals pursuing compensation over secret car finance commissions, the Court of Appeal’s judgment significantly strengthens their case. It not only confirms that fiduciary duties exist between brokers and consumers but also lays out that informed consent is essential.
This sets a strong foundation for both ongoing and future mis-sold car finance claims, increasing the likelihood of successful outcomes—whether through court proceedings or out-of-court settlements. The judgment validates consumer complaints and could lead to accelerated settlement negotiations between lenders and claimants.
What Happens Next?
Lenders have indicated their intent to appeal the decision to the Supreme Court, which must first grant permission before the case proceeds. Until that process plays out, many in the finance sector are holding their breath. Meanwhile, the FCA continues its work, and claimants represented by Kingsnorth Solicitors move forward with greater legal clarity and momentum.
If you believe you’ve been affected by an undisclosed commission on your car finance agreement, Kingsnorth Solicitors is here to help. Get in touch today to learn whether you may be eligible to make a motor finance compensation claim.
