The judgment brings clarity regarding the fiduciary duty and unfair relationships. The consumer finance sector now awaits the FCA’s plans for a new redress scheme covering commission arrangements.

By Rob Moulton, Nicola Higgs, Becky Critchley, and Charlotte Collins

On Friday 1 August 2025, the UK Supreme Court handed down its long-awaited decision in the combined cases of:

  • Hopcraft and another (Respondents) v. Close Brothers Limited (Appellant);
  • Johnson (Respondent) v. FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant); and
  • Wrench (Respondent) v. FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant) (together, Hopcraft).

Following the appeal from the Court of Appeal decision in October 2024, the verdict for Hopcraft was handed down at 4:35 p.m., deliberately timed after the markets closed on a Friday to minimise the market impact of the decision.

The judgment has been widely welcomed by the consumer finance industry, largely reversing the judgment of the Court of Appeal’s key decisions that had surprised the market back in October 2024.

We set out below the key points from the Supreme Court’s judgment impacting the consumer finance sector. In related news for this market, we also cover the FCA’s intention to consult on a potential redress scheme affecting commission arrangements.

The Fiduciary Duty

The Court first considered whether the car dealerships owed a fiduciary duty to their customers. It noted that the distinguishing obligation of a fiduciary is a duty of single-minded loyalty to the person for whom they act (their principal). Fiduciaries must not, therefore, profit from their position as a fiduciary or put themselves in a position where they will have a conflict of interest (in each case unless their principal gives fully informed consent).

The Supreme Court commented as a starting point that neither the legal regime (under the Consumer Credit Act 1974 (CCA)) nor the regulatory regime (under the Financial Conduct Authority’s (FCA’s) handbook) are premised on car dealers (when acting as credit brokers) having fiduciary obligations. The judgment continued that the three transactions in the cases before it all had typical features (which are consistent with most motor finance transactions):

  • Each party to each tripartite transaction (customer, dealer, and lender) was engaged at arm’s length from the other participants in the pursuit of separate objectives. Neither the parties themselves nor any onlooker could reasonably think that any participant was doing anything other than considering their own interest.
  • The dealer did not provide credit brokerage as a distinct and separate service from the sale transaction.
  • At no point did the dealer give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal, it was putting aside its own commercial interest as seller.
  • The dealer did not act as an agent for the customer in the negotiation of the finance package with the lender. The dealer was undertaking an intermediary activity and did not have the authority to enter into legal relations on the customer’s behalf.

The Court held that these typical features:

  • do not give rise to a fiduciary duty sufficient to give rise to liability (either for common law or equitable bribery claims); and
  • are incompatible with the recognition of any obligation of single-minded or selfless loyalty by the dealer to the customer when sourcing and recommending a suitable credit package.

The Court therefore concluded that the claims in common law and equitable bribery had failed. It also noted that the vulnerability of the customer, or the dependency of the customer on the dealer, are not indications of a fiduciary relationship, in the absence of an undertaking of loyalty by the dealer.

Unfair Relationship Under Section 140 CCA

The Supreme Court did uphold the Court of Appeal’s decision in relation to the finding of an unfair relationship in the Johnson case. While the issue of whether an unfair relationship exists under Section 140 CCA will always be fact-specific, the Court of Appeal noted the following as being relevant to that assessment where the payment of commission is part of an unfair relationship argument:

  1. The size of a commission relative to the charge for credit, the nature of a commission (for example discretionary, flat fee, percentage fee) because, for example, a discretionary commission may create incentives to charge a higher interest rate.
    In the Johnson case, the commission amounted to 55 % of the total charge for credit. The Supreme Court noted the fact of the undisclosed commission being “so high” as a powerful indication that the relationship between Mr. Johnson and the finance company was unfair.
    The Supreme Court did not give guidance on what the minimum percentage would be in order to be high enough to give this powerful indication. Finance companies may wish to analyse their current and historic commission percentages with this in mind and consider whether any may be at risk of falling into this category.
  2. The characteristics of a consumer, the extent and manner of disclosure of a commission, and compliance with the regulatory rules.
    The Supreme Court commented that it was “highly material that the documents provided to Mr. Johnson did not disclose the existence of a commercial tie between the finance company and the dealer, under which the finance company was given a right of first refusal of customers referred by the dealer. Instead, the documents created and were intended to create the completely false impression that the dealer was offering products from a selected panel of lenders and recommending the finance product that best met Mr. Johnson’s individual requirements.”
    It will be important for finance companies to consider the nature of their current and historic disclosures regarding the nature of their relationships with intermediaries, and consider whether the relationships are properly disclosed, described, and explained.
  3. The fact that a commission has not been disclosed, or only partially disclosed, will not necessarily make the relationship between the customer and the finance company unfair in and of itself. It is simply a factor to be taken into account in the overall balancing exercise.
    In Johnson, the Supreme Court stated Mr. Johnson’s failure to read any of the documents provided by the appellant weighed in the scales in the lender’s favour. However, it continued that Mr. Johnson was commercially unsophisticated, and that the Court questioned the extent to which a finance company could reasonably expect a customer to have read and understood the detail of the documents provided, particularly when no prominence was given to the relevant statements.
    It is unclear what level of prominence or disclosure would be sufficient here, given the Court’s finding that the nature of the relationship was misrepresented; however, firms should note that if a relationship may create a conflict of interest, or enable the customer to get a better deal elsewhere, firms should set this out prominently and discuss it with the customer where possible.

The Court declined to comment on whether the disclosures to customers about the possible commissions would have been adequate, or not, had a fiduciary relationship existed. These obligations will now exist solely under the FCA’s handbook.

The FCA’s Redress Scheme

The Supreme Court’s decision does not resolve the issues in the motor finance market surrounding commissions. The FCA announced on 3 August 2025 that it would consult by early October on the implementation of a redress scheme relating to commission arrangements. The parameters of this will become clear once the FCA issues its final rules following this consultation. Meanwhile, the FCA’s announcement provides the following information:

  • The FCA will propose that the redress scheme covers discretionary commission arrangements that were not properly disclosed, and non-discretionary commission arrangements. This non-discretionary commission proposal is a consequence of the Supreme Court’s decision in the Johnson case (which did not involve discretionary commission) and will focus on identifying cases where the relationship was unfair.
  • The consultation will propose that the scheme covers agreements dating back to 2007, for consistency with complaints the Financial Ombudsman can consider.
  • Interest on awards will be proposed based on the average base rate for each year of the scheme plus 1%. This would roughly be a simple interest rate of 3% per annum.

Questions remain around what the redress calculation methodology will be (whether it will be a refund of commission or something else), what of a given list of factors need to be established to prompt a redress, and how the scheme will operate, in particular whether it will be an opt-in or opt-out scheme. It is also an open question as to whether the car dealers will be liable under the redress scheme, or just the lenders; however, if the redress scheme is approached on the basis of a breach by the lenders of the unfair relationship provisions under Section 140 CCA, this would give rise to liability on the part of the lenders, as the unfair relationship provisions do not apply to the credit brokers.

No date is given for the next FCA announcement, but the redress scheme consultation will be published by early October 2025 and be open for six weeks, with the scheme being launched in 2026.