Motor finance Supreme Court ruling – what do we know so far?

Recently the Supreme Court largely overturned last year’s Court of Appeal judgment with only one claim upheld.  Claimant, Mr Johnson, succeeded under section 140A of the Consumer Credit Act 1974 which allows redress where a relationship is deemed ‘unfair’.

Most importantly for the wider industry, the case ruled out the possibility of a consumer claim for breach of fiduciary duty and in the common law tort of bribery. This has significantly reduced expected consumer compensation payouts from initial significant estimations.

What is the impact on the mortgage sector?

Mr Johnson’s case involved large undisclosed commission amounts (55% of the total charge) and a ‘discretionary commission arrangement’. In AMI’s view, the mortgage intermediary sector is not structured and does not operate in the same way as the motor finance industry. Generally, commission is more balanced, with transparent disclosures at multiple points in the customer journey.

Whilst there may not be any direct correlation, there are potential areas for consideration so AMI would recommend taking this opportunity to review the following:

Fair value assessments.

• It is important for fair value assessments to be robust and objective, highlighting any areas for review and, where necessary, outlining next steps.
• Fair value assessment requirements apply to both mortgages and protection. See AMI’s ‘Fair value assessment and framework’ and ‘Protection and GI’ documents for further guidance.
• It is important for fair value assessments to consider overall remuneration. Firms are not responsible for other firms’ pricing (for example, lenders remain responsible for assessing the fair value of their procuration fees), however an intermediary firm still needs to consider:
  • Whether procuration fees and other third-party remuneration (such as pay-aways for referrals) are fair value (i.e. is the remuneration reasonable).
  • How remuneration influences decision making. For example, is there any risk of remuneration structures creating perverse incentives for advisers and the potential for poor consumer outcomes?

Transparency

• It is important to ensure transparency on third party referrals (i.e. the relationship) and, where relevant, associated commissions (particularly where there is a risk these could be perceived as ‘hidden’).
• AMI believes documents such as Initial Disclosure Documents are generally clear on the relationship(s) between the firm, providers and any third parties. However, firms should review communications with a ‘Consumer Duty lens’ – for example, are communications likely to be understood by customers. AMI’s factsheet on the ‘Consumer Understanding’ outcome may be a useful resource.

End-to-end customer journey

• When taking a step back, how do the different disclosures piece together from a consumer perspective? Are there any areas that could cause consumer misunderstanding? For example, if your firm refers to a conveyancing partner is the customer clear on the relationship with the third party firm?

Please note this is not an exhaustive list but suggestions on areas of consideration.

So what happens next?

The FCA will consult on an industry wide redress scheme aimed at compensating consumers affected by unfair discretionary commission arrangements and other unfair commission practices in the motor finance space. The consultation is expected early October 2025 and is due to last six weeks with any scheme likely to be operational in 2026.

Whilst this does not directly impact AMI members, we will continue to monitor developments, ensuring we keep you fully updated.