The long-awaited decision in Johnson v FirstRand Bank Limited (Johnson) was handed down by the Supreme Court (the Court) on 1st August 2025, in a landmark ruling for the car finance industry. All cases brought by the claimants concerning bribery and fiduciary were dismissed; one claim brought under the Consumer Credit Act 1974 (the CCA) was successful. Bo Kay Fung and Celyn Evans from our Financial Services team explore further.
Background
The car finance controversy dates back to 2021 when the Financial Conduct Authority (FCA) banned discretionary commission arrangements (DCAs). DCAs were arrangements between car dealerships and lenders, where the dealer received a commission from the lender based on the amount of interest charged to the customer. The FCA introduced the ban in January 2021 given its view that DCAs incentivised dealers to charge unnecessarily high interest rates to their customers, often without their knowledge of the commission arrangement.
The claimants, Johnson, Wrench and Hopcraft, who first brought their case to the Court of Appeal in 2024, each purchased used cars from dealerships through finance, and entered into a credit agreement with a lender, with the dealerships in each case receiving a commission from the lender. In one case, the commission was not disclosed to the claimant. In the other two, the claimant was not directly informed, although the lender’s standard terms mentioned a commission may be paid to the dealership.
Sarah Drew, Senior Associate at Capital Law, previously discussed the Court of Appeal’s ruling that sellers and credit brokers owed consumers a “disinterested duty”, meaning they had a duty to offer information, advice or recommendations impartially and without bias. The Court of Appeal ruled on the CCA issue that the relationship between claimant and lender was unfair under sections 140A-B due to the lack of disclosure about the consumer and lender’s relationship, leading to an imbalance between the parties.
The decision by the Court of the Appeal highlighted the importance and need for transparency in consumer credit agreements.
The Supreme Court’s decision
The Supreme Court overturned the Court of Appeal’s decision and ruled that whilst car dealers owed customers certain duties as consumers, those do not amount to a fiduciary duty. In making its decision, the Court concluded that the car dealers involved in the case had not offered any undertakings or assurances to the claimants that they would find them the best deal available and set aside their own commercial interests. Nor had they advised or made decisions on behalf of the claimants, which would have resulted in a fiduciary duty. The Court stated that simply arranging finance for the claimants did not give rise to a fiduciary duty.
The Court also examined allegations of bribery against the car dealerships and rejected any notions that all undisclosed commissions are bribes, as for this to arise, a fiduciary relationship would need to be owed. Similarly, they ruled that there was no dishonest assistance regarding lenders’ involvement given the fact there was no fiduciary duty; had the Court found there to be a fiduciary duty, with lenders aware of this, the decision may well have been different.
It’s clear the Court took arguments made by the FCA (an intervening party) into consideration. The FCA intervened on the basis that undisclosed or partially disclosed commission is not enough for an unfair relationship to arise under the CCA. However, consideration should be given to the size and nature of the commission paid, the extent of the disclosure, the characteristics of the consumer and compliance with regulation.
Regarding the CCA issue, the Court found that:
Neither the Suitability Document nor any other documents provided by Trade Centre Wales to Mr Johnson disclosed the existence of the tie. We agree with the Court of Appeal that this omission of a key fact was a suppression of the truth… Trade Centre Wales was simply putting forward the terms offered by FirstRand and acting in compliance with its undisclosed contractual obligation to FirstRand.”
Trade Centre Wales, with whom Johnson purchased his car, received a commission of £1,650.95, which was 55% of the total cost of the credit. Given the high commission amount, the lack of disclosure around it and the concealment of the commercial tie between the broker and lender, the Supreme Court ruled that the relationship between Mr Johnson and Trade Centre Wales was unfair under the CCA and ordered all of the commission be paid back to Mr Johnson with interest.
The impact on credit broking
The implications of the decision in Johnson will go far beyond the motor finance industry and will impact how credit broking is undertaken with consumers across the board.
Not only will credit brokers need to be clearer on how they disclose any commission being made through agreements entered into by consumers—including the commission’s size and whether it is discretionary—they will also need to clearly highlight their commercial links with lenders. Crucially, brokers will also need to consider the characteristics of consumers, particularly whether the consumer could be considered “commercially unsophisticated”. Although the FCA’s Consumer Duty, which came into effect on 31 July 2023, was introduced before the events in Johnson, it will play a key role for credit brokers moving forward. The Consumer Duty requires firms to deliver good outcomes for their customers, and we expect the FCA will scrutinise unfair relationships between brokers and less “commercially sophisticated” consumers more closely.
The FCA’s response
Since the Court’s ruling, the FCA has announced plans to open a consultation for an industry-wide redress scheme by October 2025 to compensate motor finance customers who may have been treated unfairly under the CCA. The Court agreed with several factors put forward by the FCA that could point towards an unfair relationship, which will be examined alongside the facts of each case.
Compensation is estimated to be up to £18 billion with individual claims amounting to less than £950 each. The FCA estimates that successful payments will start to be made in 2026.
The FCA plans to consult on an interest rate for each year of the scheme with any interest awarded to customers being “fair and proportionate”.
Limitation period and impacts on credit broking
The redress scheme could cover agreements made as far back as 2007, as the FCA aims to match the earliest date that the Financial Ombudsman Service can consider complaints.
The House of Lords Financial Services Regulation Committee (the Committee) has since challenged the FCA’s approach to limitation timelines on when a claim can be brought, and requested that the FCA confirms the legal basis for the proposed timeframe as well as what legal advice has been taken.
Motor finance customers can generally rely on the CCA to claim for redress without being time barred, if the motor finance agreement is continuing and the unfair relationship to the consumer is ongoing. An example of this can be found in the case of Plevin v Paragon Personal Finance [2014]. When a credit agreement ends, consumers may still be able to claim beyond the standard six years following termination if any facts relevant to their claim, for example, the discretionary commission, were deliberately concealed. Then, the starting point for the limitation period following termination of the credit agreement will be when the consumer has knowledge of the relevant facts (or with reasonable diligence could have discovered the concealment).
The Committee also highlighted its concerns about the costs for brokers. Allowing claims as far back as 2007 will impose a further risk for brokers and businesses more broadly and companies will need to ensure they have made adequate financial provisions, which they may not necessarily have, given the potential 18-year timespan that claims could relate to. The FCA also noted that there could be several billions of pounds spent on administrative costs alone and the Committee has asked whether the FCA has considered if this is proportionate given the amount to be paid by firms in redress.
Following a joint statement with the Solicitors Regulation Authority, the FCA has emphasised its aim to make any redress scheme easy for consumers to participate in, avoiding the need to involve claims management agencies or solicitors, which usually cost customers up to 30% of any compensation they receive in fees. Firms will also be required to tell customers whether they’re eligible to make a claim.
How can we help?
If you’d like to understand more about how the FCA’s upcoming consultation and redress scheme will impact your business, please get in touch with our Financial Services team.
