The importance of the upcoming Supreme Court decision on Johnson

June 18, 2025

The Commission Game Changer?

Motor Finance Cases - Supreme Court Hearing and Implications for Lender Liability

The anticipated Supreme Court judgment in Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcroft & Another v Close Brothers Limited (“Johnson”), expected in July 2025, will address pivotal questions regarding broker and lender liability in motor finance commission cases. The appeals of Johnson & Others concern the disclosure of commission payments to car dealers and their disclosure to customers. The decision has the potential to significantly influence any future redress scheme, with the Financial Conduct Authority (FCA) expected to announce its position within six weeks of the ruling.

Background to Motor Finance Commission Cases

The core issue in these cases revolves around commissions paid to car dealerships or credit brokers by lenders for arranging car finance. These arrangements typically involved discretionary commission agreements (DCA), where dealers could set the interest rate or APR paid by the customer, on behalf of the lender. The higher the rate paid by the customer, the higher the commission earned by the car dealer or broker. This system has been the subject of ongoing customer complaints, especially after the FCA banned the use of DCAs in January 2021 and implemented stricter rules for commission disclosures in consumer finance agreements.

Since the FCA highlighted the existence of DCA commission arrangements, customers who had purchased cars with such finance arrangements began bringing claims to challenge the commissions paid an the impact on their interest rates, alleging they were overcharged interest due to undisclosed or insufficiently disclosed commissions. The three cases of Johnson, Wrench, and Hopcraft were three of such cases, which were initially unsuccessful in the County Court but were later appealed and heard together in the Court of Appeal.  The three cases were all slightly different:

  • Johnson – although the commission was on the now banned DCA model, the interest rate selected was the lowest available, so that the dealer received a fixed commission of £1,650 which was 25% of the credit taken out.  There was partial disclosure of commission as it was mentioned in the agreement’s terms and conditions and the suitability document also mentioned its possibility.
  • Hopcroft – the commission paid was £183.26 but it was not known how it was calculated.  The commission was entirely silent and not disclosed.
  • Wrench – commission of £179.85 was paid on the first loan and £408.98 on the second loan.  The commission on the second loan was calculated under a DCA but at the lower end of the rates available.  There was disclosure of the fact of commission, but this was “buried” in the small print terms and conditions.

Key Findings in the Court of Appeal's Judgment

The Court of Appeal’s ruling addressed the concept of fiduciary duty in the context of commission payments and provided a comprehensive analysis of what constitutes "secret" and "half-secret" commissions:

  1. Fiduciary Duty and "Disinterested Duty": The dealers in all three cases were found to have acted as brokers and owed both a "disinterested duty" to provide impartial advice and a fiduciary duty to the consumers. This meant that the dealers were obligated to act in the best interests of the consumers and to disclose any commission arrangements.
  2. Secret Commission: In the case of Hopcraft, where the commission was kept entirely secret, the Court ruled that the dealer's breach of fiduciary duty was a violation of both the disinterested and fiduciary duties. In this scenario, the commission was therefore deemed "secret," and the lender was found to have primary liability. This was analogous to a bribe due to the total lack of transparency.  
  3. Partial Disclosure ("Half-Secret" Commission): In Johnson and Wrench, there was partial disclosure of the commissions, meaning that the customers were told that a commission "may" be paid, but not the full details. The Court of Appeal found that this level of disclosure was insufficient to negate the secrecy of the commission arrangement. Specifically, in Wrench, the Court concluded that a disclosure "buried in the small print" of the lender's standard terms did not sufficiently inform the customer. In Johnson, while the customer had signed a document acknowledging the potential for commission, the disclosure was still deemed insufficient to gain fully informed consent from the consumer, resulting in a breach of the dealer's fiduciary duty.
  4. Informed Consent and Breach of Fiduciary Duty: The Court emphasised that informed consent could only be obtained if the customer was fully aware of the material circumstances surrounding the commission arrangement, including the dealer’s financial interests. Citing Hurstanger Ltd v Wilson, the Court noted that for consent to be informed, the customer must understand the nature and extent of the broker’s interest. In both Wrench and Johnson, the Court found that the dealer’s disclosure was insufficient to ensure that the customer gave fully informed consent.
  5. Lender Liability in Cases of Secret and Half-Secret Commissions: The Court clarified that where a commission is secret, the lender bears primary liability. In Hopcraft, the lender was found to have direct responsibility for the dealer’s breach of fiduciary duty. In the case of a half-secret commission, however, the lender may be held liable as an accessory to the breach of fiduciary duty only if it is proven that the lender acted dishonestly or turned a blind eye to the dealer’s breach. In Johnson, the Court found that the lender was dishonest in its dealings and thus liable as an accessory to the breach of fiduciary duty.
  6. Commission Model: Notably, the Court of Appeal’s decision went further than the FCA’s report into commission in the motor finance industry and found that fixed commissions could also cause unfairness if they were not properly disclosed.  Previously, it had been considered that only DCA commissions were ‘in scope’.
  7. Unfair Relationship under the Consumer Credit Act: In Johnson, the Court found that the relationship between the lender and the customer was unfair under sections 140A-B of the Consumer Credit Act 1974. The Court invoked Section 140B(1)(a), ordering the lender to make a payment equivalent to the value of the commission.

Implications of the Supreme Court Ruling – When it Arrives

The decision from the Supreme Court will have far-reaching consequences for both lenders and customers in the motor finance sector. If the Supreme Court upholds the Court of Appeal’s findings, it will cement the importance of full transparency to customers of the commission arrangements between car dealers and lenders. Furthermore, it will have profound implications for how enders are required to structure and disclose commission payments, especially in light of the FCA’s growing focus on conflicts of interest.

For lenders, the ruling could prompt a comprehensive review of existing practices and the customer journey. Lenders will need to ensure that commission arrangements comply with current conflict of interest policies and that commission disclosure is clear, comprehensive, and easily understood by customers.

Additionally, the ruling is likely to result in heightened scrutiny of motor finance practices, with an increased number of customers seeking redress for undisclosed or inadequately disclosed commissions. The FCA’s previous warnings about the need for motor finance firms to maintain adequate financial resources will become even more important if this trend materialises.  The FCA has also intimated that it will initiate a redress scheme although the details of such remain opaque and unclear.  We wait to see whether the Supreme Court will make a decision regarding the commission models, and whether fixed commissions as well as DCAs will continue to be regarded as unfair if not disclosed.

In conclusion, the Supreme Court decision when it arrives is poised to have a profound effect on the motor finance sector, influencing how lenders and dealers handle the disclosure of commission payments, shaping the landscape for both lenders and consumers in the coming years.

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