As the UK Supreme Court prepares to deliver its much-anticipated ruling in the cases of Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd, and Hopcraft v Close Brothers Ltd, concerns are mounting across the financial sector.

Industry commentators, regulators, and insurers have warned that the Court of Appeal’s decision in October 2024, affirming broad fiduciary duties and classifying undisclosed commissions as ‘bribes’, may trigger a wave of compensation claims, with some estimates expecting a potential exposure of £30 billion.

But has the judiciary really overstepped? Or is this simply the law catching up with commercial practices that were arguably problematic for years?

Legal Principles, Not Innovation

The Court of Appeal’s findings were rooted in established common law principles. Far from creating novel duties, the judgment reaffirmed long-standing expectations regarding transparency and conflicts of interest in agency relationships.

The court found that where a dealer acts as a credit broker, there is often an agency relationship with the consumer.

An agency relationship is a legal association where one party (the agent) is authorised to act on behalf of another party (the principal) when dealing with third parties.

In the context of motor finance:

• The car dealer or broker is often the agent.
• The customer is the principal.
• The dealer arranges finance with a lender, usually earning a commission from the lender.

If an agency relationship exists, the agent (dealer) has fiduciary duties to the principal (customer). These include:

• Acting in the customer’s best interests.
• Avoiding conflicts of interest.
• Disclosing any commission or financial benefit they receive that could influence their advice.

So, if a car dealer secretly earns a large commission for steering a customer toward a particular finance deal, and doesn’t disclose this, they may have breached their fiduciary duty under agency law.

Discretion, Incentives, and the ‘Unfair Relationship’

Central to the controversy is the use of discretionary commission arrangements (DCAs), which allowed brokers to adjust the consumer’s interest rate, often without informing them, in order to increase their own cut.

It is difficult to reconcile such practices with basic principles of fairness, particularly where the consumer is unaware of the broker’s financial interest in upselling the loan. The Court of Appeal’s conclusion that this gave rise to an ‘unfair relationship’ is consistent with the statutory scheme.

Industry Backlash vs Consumer Protection

The Financial Conduct Authority and HM Treasury have expressed concern that the Court of Appeal’s reasoning could be applied too broadly, potentially stifling access to credit. Their position is not without merit. Uncertainty over legal duties can deter lenders from entering or remaining in consumer markets.

The Financial Ombudsman Service has already received more than 100,000 complaints related to the use of discretionary commissions and non-disclosure of broker incentives. In parallel, a growing number of consumers are seeking guidance from car finance solicitors to assess whether they were misled and might be eligible for redress.

Major lenders have started making provisions to account for possible compensation. Lloyds Banking Group has set aside £1.15 billion, including an additional £700 million added in early 2025. Santander UK has earmarked £295 million, while Close Brothers has allocated £165 million. Barclays has provisioned £90 million, and FirstRand has set aside a further £140 million. According to estimates from Moody’s, the total potential liability across the industry could reach £30 billion in a worst-case scenario, with a base-case estimate closer to £18 billion.

The FCA has expressed concern that, without clear limits on broker liability and clarification around fiduciary obligations, lenders could be forced to hold significantly higher capital reserves to cover contingent claims. That, in turn, could render many forms of commission-based motor finance commercially unviable, leading to higher borrowing costs or restricted access to credit for consumers.

But it is worth noting that the FCA itself banned DCAs in January 2021 and has since introduced stricter requirements on commission disclosure. The legal system, in this context, is simply reinforcing the standards regulators already deemed necessary. The notion that consumers should understand the monetary incentives behind financial advice is hardly radical.

Proportionality and the Role of the Supreme Court

There is room for the Supreme Court to refine the scope of the fiduciary duty and clarify the threshold for what constitutes a ‘secret’ commission. It may choose to distinguish between different types of brokers, or offer guidance on the appropriate remedies where disclosure was incomplete rather than entirely absent.

But such clarification would not undermine the core principle: that drivers are entitled to fair, transparent advice when entering into long-term financial agreements. Where commissions are concealed, and brokers fail to act in the customer’s best interest, legal accountability is not an overreach; it is the necessary consequence of fiduciary law and consumer protection legislation.

Far from overreaching, the tribunals are applying foundational doctrines to a sector that has, until recently, operated with limited scrutiny. If the Supreme Court chooses to uphold the Court of Appeal’s findings in full, it would not be setting a new precedent so much as reaffirming the legal and ethical standards that underpin trust in financial transactions.

For the motor finance industry, the solution is not to challenge the principle of disclosure, but to adapt business models that align with modern expectations of transparency, fairness, and consumer autonomy.