August 2025

      The Supreme Court has overturned in part the landmark Court of Appeal (CoA) judgment regarding Motor Finance commissions, setting out that:

      • neither a disinterested duty nor a fiduciary duty was owed by the dealers to their customers, overturning two out of three of the claims entirely; and
      • there was a breach of the Consumer Credit Act, 1974 (the ‘CCA’ or the ‘Act’) on the basis of an unfair relationship, upholding one of the three claims (Johnson).

      Whilst the Johnson judgment1 was case fact specific, the Supreme Court outlined several factors which could indicate an unfair relationship under the CCA taken from the FCA’s submission to the Court. Noting the fact that the size of the commission (55%) was high and a powerful indication the relationship was unfair, this was added to by the fact that this commission was undisclosed. The commercial tie between the dealer and the lender was also material.

      Responding to the judgment over the weekend, the FCA2 has subsequently confirmed that they will consult on a Redress Scheme (the Scheme), covering how firms should assess whether the relationship between the lender and borrower was unfair for the purpose of the scheme and if so, what compensation should be paid.

      Continuing their engagement with firms, by early October they will set out further details on the scope and parameters for a planned six-week consultation.

      The FCA has been clear that they remain focussed on moving at pace with the aim to finalise the rules such that the Scheme can launch in 2026, with consumers starting to receive compensation next year.

      Whilst the judgment has without doubt limited the impact of the original CoA decisions, it has also introduced potential complexity relating to how differing and case specific factors may need to be balanced to determine fairness under the CCA and the impending Scheme rules.

      A material Redress Scheme remains likely, with the FCA estimating the cost of redress between £9bn and £18bn. KPMG in the UK explores what has happened, what it means and what happens next for Motor Finance firms

      The Backdrop

      In 2021, the FCA banned Discretionary Commission Arrangements (DCAs) for Motor Finance as these arrangements could potentially provide an incentive to charge a customer a higher interest rate. Since January 2024, when the FOS found in favour of the customers in two key decisions following DCA complaints, there has been significant interest and activity relating to Motor Finance commissions. 

      In October 2024, the Court of Appeal unexpectedly ruled in favour of the customers in three Motor Finance commissions claims, significantly broadening the issue beyond discretionary commissions to all commission paid by lenders to dealers where the customer’s informed consent was not obtained.  This Court of Appeal judgment was appealed and the Supreme Court have now issued their ruling on these cases.

      Motor Finance commission complaint handling remains on pause, currently until December 2025.

      Supreme Court judgment — Legal Overview

      Global & UK Head of Financial Services for KPMG Law in the UK, Kennedy Masterton-Smith summarises the key points from the Supreme Court Judgment

      The main focus of market discussion and concern prior to the Supreme Court decision was the uncertainty around the nature of the relationship between the dealer and the customer, and the duties owed by the dealer to the customer. In the Supreme Court judgment, the trigger and nature of a fiduciary duty was usefully discussed at length.

      In conclusion the Supreme Court was very clear in its view that a car finance arrangement is a three corner agreement between the lender, the dealer and the customer. In this relationship it was clear that the dealer was at all times acting in their own interests to facilitate the sale and purchase of the car and support to the customer in arranging finance was only to facilitate that sale and purchase. The dealer had no authority to bind the customer in the negotiations with the lender. There was at no time an undertaking by the dealer that it accepts a duty of loyalty to the customer and sets aside its own interests. 

      The Court appreciated that there may have been a relationship of trust and confidence between the customer and the dealer, but that this did not trigger a duty of undivided loyalty on the behalf of the dealer. The parallel was drawn to the advice which the dealer might give as to the best roof rack to source from the market and add to the car. The Supreme Court also highlighted that the weight given to vulnerability of the customer as an indication of a fiduciary relationship was misplaced.

      Following the clarification that no breach of fiduciary duty took place in each of the three cases, the Supreme Court addressed the question of whether the relationship between Mr Johnson and the lender was unfair within the meaning of section 140A of the CCA.

      The test of the unfairness of the relationship of the debtor and the creditor under the CCA is very broad and as noted above the assessment is fact-sensitive, which was famously addressed in Plevin3. That being said, the Supreme Court agreed with the FCA that the following five factors in this non-exhaustive list will normally be relevant:

      • the size of the commission relative to the charge for credit;
      • the nature of the commission (because, for example, a discretionary commission may create incentives to charge a higher interest rate);
      • the characteristics of the consumer;
      • the extent and manner of the disclosure; and
      • compliance with the regulatory rules.

      The Supreme Court noted that whether the purchase was a bad commercial deal was not a factor that indicates whether a relationship is unfair, and the Court of Appeal was wrong to take into account the fact that the vehicle was sold at an inflated price. It was also acknowledged that the relationship between a lender and a borrower is inherently unequal but that doesn’t indicate that it is unfair.

      The Supreme Court very clearly concluded that, based on the facts, the relationship between Johnson and the lender was unfair because of:

      • the size of the commission;
      • the failure to disclose the commission, and
      • the concealment of the commercial tie between the dealer and the lender

      Mr Johnson was provided with documents that made reference to the possibility that a commission may be payable, however, he failed to read them. The Supreme Court questioned to what extent a lender could reasonably expect a customer to have read and understood the detail of these documents. In the Supreme Court’s mind a customer would not expect that a materially high commission would be paid, and as such it should be displayed more prominently and the customer’s attention expressly drawn to it.  As this was not done then the consequence is that it was not properly disclosed.

      Although not included in the list of the five factors the Supreme Court notes that the existence of the commercial tie between the dealer and the lender (where the lender had first refusal on lending) and its complete non-disclosure to Mr Johnson is highly material to the issue of unfairness of the relationship.

      Implications of the Supreme Court Judgment

      The broadening of the issue in October 2024 by the CoA to all Motor Finance agreements where commission was not disclosed and/or consented to, has now been somewhat curtailed by the Supreme Court decision.

      This has been viewed as a more proportionate and balanced outcome, thereby avoiding a potential real time test for the Leeds reforms and the government’s growth agenda.

      Estimates of the financial impact across the market have been significantly reduced, with the FCA estimating a cross-market exposure of between £9 – £18 billion. In response, share prices of the main lenders reacted positively when the market reopened on 4th August.

      However, lenders captured by the initial FCA led review into discretionary commission now have confirmation that the issue has extended to incorporate parts of their non-DCA lending books — for a number of firms their non-DCA exposure is now therefore confirmed to have increased.

      In addition, firms not previously in scope of the FCA discretionary commission review are now also captured.

      The expected Redress Scheme

      In the run up to the judgment, the FCA had been clear that it would make a final decision on whether to proceed with a Redress Scheme within six weeks of the Supreme Court’s ruling.

      In fact, they issued their announcement on this within 48 hours of the judgment — setting out their intention to continue their engagement with firms so that in early October they could issue for consultation over a subsequent six week period, the details on the proposed Scheme’s scope and parameters.

      They have however already outlined that they will consider: 

      • DCAs, where the broker could adjust the interest rate offered to a customer — if they were not properly disclosed.
      • Some non-DCAs, where it is established that the arrangement can be considered to be unfair under the CCA.

      The impact on both the DCA and non-DCA lenders will now depend on the FCA’s interpretation of the interacting factors set out by the Supreme Court as being relevant to determining fairness under the CCA.

      The size of the commission relative to charge for credit could be a relatively binary tipping point as the court found that this was a breach of FCA rules where it was high and undisclosed. However, the balancing of all these interacting factors is now where we will likely see complexity introduced. The FCA will need to consider how these factors can define unfairness whilst meeting their principles for a Redress Scheme, including simplicity, certainty and transparency.

      If not already underway in response to the CoA judgments, firms should have a full and proper understanding of their commission arrangements, agreement libraries and any other distinguishing factors. 

      Operating the scheme

      The FCA had suggested the benefits of an opt out approach which if pursued will leave lenders in the position of having to proactively identify their fully impacted customer populations and manage the required payouts. The Supreme Court’s decision and the FCA’s stated intention to bring into scope arrangements from 2007 onwards may complicate this approach.  

      Clearly, operationalisation of the scheme will continue to be reliant on the adequacy of a firm’s data. They will need to implement processes to support redress calculations in relation to both DCA and non DCA type agreements, further complicated by the potentially overlapping remedies. It is unclear whether the FCA will put forward a ‘one size fits all’ approach linked to the return of commission rather than linking DCA arrangements to APR thresholds and the return of excess interest.

      With a widened population which may well go back to 2007, tracing (should this be required where a complaint has not already been received) and the safe processing of payments will be critical to avoid the inevitable fraud risks associated with what will likely be a highly advertised scheme of this size.

      In addition, whilst the judgment suggests a large proportion of the non DCA agreements are likely now out of scope of the scheme, responses to customers on these outcomes will still require some form of processing when the complaint handling pause is lifted.

      Firms will want to continue to take proactive steps to assess exposure and ready themselves for a potentially large-scale customer remediation exercise to commence early next year. A digital/technology led approach to implementation will be key to delivering the scheme in an effective and efficient way.

      In the meantime, the pause on complaint handling remains in place until at least 4 December 2025 and is likely to be extended so as to align to the start of the Redress Scheme that is put in place.

      What else is there to consider

      Following the CoA decisions, Motor Finance firms were struggling in the wake of the decisions on how to legally write new business and had taken steps to disclose and seek consent on commissions paid. Whilst there is therefore no immediate impact on the front book, this judgment suggests overall a validation of the changes made and provides an opportunity to ensure these changes are properly embedded and operating as intended.

      We still expect that this decision will trigger intense scrutiny, not just across the Motor Finance sector, but across all consumer credit models reliant on commission structures and discretionary pricing mechanisms, for example loans, aggregator sites, credit cards, insurance products. Consideration may want to be given to any other related front book changes that might be prudent given this outcome.

      Law firms and CMCs who have been advertising heavily over the past year may now be somewhat curtailed, this judgment will still see activity by them and they may look to argue cases based on individual harms and/or read across to other asset finance or product sets.  We may see immediate and further intervention by the FCA in this regard.

      What actions can lenders take now to prepare and respond?

      The FCA has been clear of their intention to maintain momentum and operate at pace to ensure a redress scheme can be implemented as early as possible next year.

      Whilst lenders await the detail of the redress scheme to be consulted on, there are several actions lenders can take to prepare and respond to the latest announcements: 

      • Lenders are already experiencing an increase in complaints because of the announcements and media coverage. Lenders may want to increase their capacity to accurately triage and respond to these complaints, either progressing them through BAU (non-commission related) or providing the customer with the required information and placing their complaint on pause. Where automation has been introduced to respond to these complaints, lenders may want to consider any updates required to reflect the latest developments and templates.  
      • Once the pause has been lifted, complaints will need to be responded to quickly and accurately reflecting the terms of the redress scheme. Lenders should prepare by capturing all complaints into structured data with their associated loan and commission data so they can be segmented into the appropriate outcomes and customer engagement model. 

      Many lenders are already preparing for a Redress Scheme in 2026 and should build on this momentum given the shortened consultation period and readiness timelines. Key priorities include:

      • Data readiness – creating a single source of truth for all Motor Finance products dating back to 2007, completing data profiling and gap analysis and taking action to fill gaps where possible. This will collate all customer, loan, commission and complaint data into a single, customer-centric database to inform accurate action once the parameters of the redress scheme are determined.
      • Redress scheme process design and technology enablement – detailed redress scheme process design, including customer journeys, CMC-led journeys, fraud prevention, customer matching and verification criteria and payment processing. Lenders should consider the use of technology to enable a straight through data-led process as much as possible, enhancing customer experience, operational efficiency and outcome accuracy.
      • Operational readiness – forecasting operational requirements for managing a redress scheme, considering both opt in and opt out scenarios, including roles and skills requirements, scalability, offshore vs onshore options, training and stand up of the operation.
      • Redress calculation readiness – construct a redress methodology and calculator, considering the parameters set out by the FCA, that can then be calibrated based on the outcome of the consultation. The construct will want to include the potential product variations (e.g. early settlements), a range of potential methodologies and the calculation of interest based on the recently introduced average base rate plus 1%.  


      The FCA has stated clearly that the industry-led practices introduced following the CoA judgment in October 2024 (for example, fully informed consent) were welcomed and leading to better customer outcomes under the Consumer Duty. Therefore, lenders should:

      • Validate the forward-looking changes they implemented in October 2024 and consider whether any further action may be required to strategically embed the new practices with effective oversight.
      • Consider other lending products with commission arrangements and whether similar practices may need to be put in place to ensure consistently good customer outcomes, applying the feedback from the FCA.

      Lenders should consider the impact of the Supreme Court ruling and the subsequent FCA announcement on their scenario modelling and provisions for potential redress. Including re-assessing the scenarios and their respective weighting and the strategy for when any provision updates may be required, e.g. when the consultation is published and then finalised.

      How can KPMG in the UK help?

      We offer multi-disciplinary professional services that allow us to support our clients across a wide range of activities required through our Consulting, Legal and Managed Service businesses.

      We are already engaged across the market on this issue and so bring broad insights into our support as well as extensive experience with UK Retail Remediations. 

      • Regulatory and Remediation experienced consultants — At KPMG in the UK, we have a highly experienced team of regulatory and remediation specialists. Our consultants can support you across all aspects relating to Motor Finance commissions, including the design and development of your redress process, interpretation of legal and regulatory requirements, and validation of customer outcomes.
      • Technology and Data Analytics specialism — Our data and technology teams are an integral part of our remediation approach. We can support with data readiness (including data profiling, enrichment and validation) and technology-enablement. We have a tried and tested, technology-led straight through processing redress platform, configured specifically for the MF commissions issue, including a digital customer-facing portal for the management of claims and complaints.
      • Redress Methodology & Calculation — We have substantial experience of redress calculator design and validation and have helped several banks and lenders with redress calculators on industry-wide issues such as PPI, Package Banking Accounts (PBA) and other Motor Finance initiatives. Our consultants can support with defining a detailed redress methodology, and the build, validation or automation of redress calculators.  
      • KPMG Legal support — Our KPMG Law in the UK team of solicitors, disputes professionals and in-house Counsel has significant regulatory and disputes readiness experience, working hand in hand with consulting and regulatory advisory teams to help protect clients’ positions and provide legal support through the strategy and remediation process. This includes legal advice on specific elements of the programme, contractual and file reviews as well as disputes and public law support. By working ‘under-one-roof', our legal team can support efficiently and at pace4.   
      • Managed Service support — KPMG's managed service can help provide a range of operational support, including capacity management through resource augmentation through to outsourced operational execution and delivery. We have both onshore and offshore remediation resources, specifically trained and experienced in operational remediation delivery. 

       


      1 https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf

      2FCA to consult on a compensation scheme for motor finance customers | FCA

      3Plevin v Paragon Personal Finance Ltd [2014] UKSC 61; [2014] 1 WLR 4222 

      4KPMG Law is part of KPMG LLP, a multi-disciplinary practice authorised and regulated by the Solicitors Regulation Authority. SRA ID: 615423. For full details of our professional regulation please refer to ‘Regulatory information’ under ‘About’ at www.kpmg.com/uk Legal services may not be offered to SEC registrant audit clients or where otherwise prohibited by law.


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