Introduction to the Supreme Court Motor Finance Appeal

The UK Supreme Court is currently embroiled in a landmark appeal concerning whether car dealers owe a fiduciary duty to their customers when arranging motor finance agreements. This case has significant implications for the motor finance industry, potentially involving billions of pounds in compensation if the Supreme Court upholds previous rulings. At the heart of the issue is whether car dealers, acting as credit brokers, have a legal obligation to prioritize customers' interests over their own when securing finance deals.

Background on Fiduciary Duty

A fiduciary duty is a legal obligation that requires a party to act solely in the best interests of another party. In the context of car finance, this would mean that dealers must ensure they are acting in the customer's best interest when selecting lenders and agreeing on finance terms. The Court of Appeal previously ruled that dealers do owe a fiduciary duty, a decision that has sent shockwaves through the industry.

The Supreme Court Hearing

The Supreme Court hearing began on April 1, 2025, with lawyers for lenders arguing that car dealers do not owe a fiduciary duty to customers. Mark Howard KC, representing Firstrand Bank, noted that dealers' roles are comparable to those of shop assistants or sommeliers, who do not have a legal responsibility to find the best deals for customers[1][2]. The Financial Conduct Authority (FCA), acting as an intervener, expressed concerns that the Court of Appeal's approach might have gone too far in treating dealers as fiduciaries[1][2].

Key Arguments Presented

• Lack of Fiduciary Duty: Lawyers for lenders argue that there is no fiduciary duty owed to customers by car dealers or lenders, as dealers have not undertaken to subordinate their interests to those of the customer[1][2].
• Consumer Protection without Fiduciary Duty: It is argued that consumers are not left without legal protection even if no fiduciary duty exists, as other legal duties and consumer protections apply[2].
• FCA's Concerns: The FCA cautions against abandoning the tort of bribery or disinterested duties, suggesting this could create legal gaps and distort established principles[1].

Implications of the Ruling

If the Supreme Court upholds the Court of Appeal's decision, it could lead to significant financial repercussions for lenders, with estimates suggesting potential compensation of up to £30 billion[1]. This scenario has already led to major banks setting aside substantial provisions; Lloyds Bank has allocated £1.2 billion, while Close Brothers has reserved £165 million[1].

Possible Outcomes and Industry Impact

• Compensation and Redress: An adverse ruling for lenders could trigger an industry-wide redress scheme by the FCA to manage compensation for customers deemed to have been mis-sold car finance[5].
• Regulatory Changes: The ruling may prompt regulatory reforms, including changes to the Consumer Credit Act 1974, to provide clearer guidelines on commission disclosure and fairness in credit agreements[4][5].

Legal Framework and Consumer Protection

The Consumer Credit Act 1974 provides mechanisms for addressing unfair credit relationships, which could be pivotal in determining whether lenders are liable for failing to disclose commissions adequately[3][5]. The FCA's oversight and potential rule changes are crucial in ensuring consumer protection and transparency in motor finance.

Current Regulatory Landscape

• Discretionary Commission Ban: The FCA has banned discretionary commission arrangements in motor finance, emphasizing stricter disclosure requirements for consumer finance[4].
• Ongoing Reforms: The government is consulting on reforms to the Consumer Credit Act and is reviewing regulatory frameworks for short-term and long-term vehicle rentals, reflecting a broader push for consumer protection[5].

Conclusion: The Future of Motor Finance

The Supreme Court's decision will provide much-needed clarity on car dealers' obligations. Whether car dealers owe a fiduciary duty or not, the outcome will reshape the motor finance sector's practices and potentially prompt significant legal and regulatory changes to safeguard consumer interests.