"Controversial assertions from companies faced reprimand for their advertisements prior to the motor finance decision"
The UK Supreme Court's recent decision in the Hopcraft v Close Brothers and related cases has significantly impacted the motor finance industry, narrowing the grounds for successful claims against lenders. The ruling, announced on August 1, 2025, has left the market on edge due to the potential £30bn compensation at stake.
The ruling rejects claims that dealer commissions constitute bribes or that dealers owe fiduciary duties to consumers, thereby limiting the grounds for successful claims against motor finance lenders. However, it acknowledges that claims under Section 140A of the Consumer Credit Act 1974 (CCA), which addresses unfair relationships, may still succeed if certain conditions of unfairness are met.
One specific case, Johnson, was allowed under the unfair relationship test of Section 140A CCA. Compensation awarded in these cases is generally the amount of the commission paid plus commercially appropriate interest.
In response to the ruling, the UK Financial Conduct Authority (FCA) has confirmed it will publish a consultation in October 2025, proposing an industry-wide consumer redress scheme to compensate customers affected by unfair motor finance commission practices. This scheme is expected to cover agreements dating back to 2007 and will last six weeks for consultation, with implementation targeted for 2026.
The FCA’s consultation will clarify how firms should assess unfairness and determine compensation amounts, potentially including non-discretionary commission scenarios as well. Meanwhile, the government is unlikely to pursue new legislation following the Supreme Court ruling, given the decision's outcome favors lenders and narrows claims.
Former Conservative MP Anthony Coombs and Lord Justice Reed have criticized claim management companies (CMCs) for encouraging individuals to sign up for potential claims before the Supreme Court's decision. Martin Lewis, chair and founder of Money Saving Expert, warned his audience not to sign up with a claims firm to complain, as it may cost them up to 30% in fees of any compensation they receive.
The Court of Appeal ruled last October that two lenders, Close Brothers and FirstRand Bank, did not obtain consumers' consent for the commission. The Court of Appeal's ruling was put on hold as the case was sent to the Supreme Court. The City watchdog and the Financial Conduct Authority issued warnings to law firms and CMCs over 'poor practices' in motor finance claims ahead of the ruling.
The legal watchdog and the Financial Conduct Authority threatened to investigate and take action against firms involved in such cases. The Supreme Court is yet to announce its decision on the motor finance case, and the total costs of the redress are expected to be between £9bn and £18bn.
In summary, the Supreme Court decision favors lenders by limiting claims to unfair relationship cases under the CCA, where unfairness must be demonstrated on specific factual grounds. The FCA is actively pursuing a regulatory compensation scheme to address unfair practices going forward and remedially for past cases. Consumers with motor finance agreements may still seek redress via this statutory unfair relationship route, but broader claims based on fiduciary duty or tortious bribery have been dismissed.
- The impact of the UK Supreme Court's decision in the Hopcraft v Close Brothers case has extended beyond the motor finance industry, raising questions about business practices in other sectors that involve commission-based arrangements.
- The finance sector, particularly in the business of motor finance, is closely watching the responses from the UK Financial Conduct Authority and the government, as they shape regulations and potential compensation schemes in response to the ruling.
