Prepare NOW for spectrum of Supreme Court outcomes, advise experts

The auto finance industry needs to be ready in advance for however the court rules

Automotive finance lenders and brokers should be urgently planning for a full range of scenarios that arise from the Supreme Court’s ruling on commission disclosure, which experts say could come as early as the last week of June.

They advised senior figures from the auto finance industry at the Asset Finance Connect Summer Conference 2025 not to expect a win-lose verdict, but instead to prepare for a spectrum of outcomes.

The Supreme Court’s judgement will establish common law and potentially identify which party or parties are liable for any redress, but it will not address any compensation schemes. These are the remit of the Financial Conduct Authority (FCA), which has given itself a six-week deadline to confirm whether it intends to launch a consumer redress scheme. This will then be followed by a pre-consultation period followed by a subsequent consultation.

“The earliest you could expect the FCA to be in a position to confirm a redress scheme would therefore be around Easter 2026,” said Adrian Dally, Director of Motor Finance & Strategy at the Finance & Leasing Association (FLA).

But there is no guarantee that this would be the start of the end of the issue, with any redress scheme is vulnerable to challenge. The FLA has already said it will litigate if it considers the FCA’s proposals disproportionate or too costly.

Muddying the waters further is the ongoing judicial review of a High Court decision which sided with the Financial Ombudsman Service against Clydesdale Financial Services Ltd (trading as Barclays Partner Finance) in a case involving motor finance discretionary commission arrangements.

He advised firms to build a granular understanding of their former business models, going back years, including the type of commission or distribution models they operated at different times.

“So, when there is a consultation, you’re able to articulate differentials between what might be in the Supreme Court ruling or anything that’s proposed through a DCA redress programme,” he said.

By identifying data sources and available documentation now, firms will start to build the evidence of previous practices and could allow firms to distinguish between different cohorts of customers, depending on the court’s findings.

“Firms need to get their data ready,” she said. “There’ll be firms that have multiple historic systems, data in different forms and formats, and they need to pull it all together so they understand to whom they have and haven’t sold on commission. They’ll have lots of complaints coming through, some of which will be nil commission to which they can respond now.”

McCulloch also advised companies to ensure they have strong management information systems and workflow tools to track both the volume of complaints they are receiving as well as any proactive activity they undertake if the Supreme Court upholds the Court of Appeal’s judgement. Building this audit trail supports good governance and will mean firms have answers at their fingertips when regulators start asking detailed questions.

And while claims management companies (CMC) may appear to be the enemy as they recruit new complainants to lodge claims for redress compensation, McCulloch recommended lenders adopt a constructive approach and try to build relationships with them.

“CMCs can make it really difficult if they create individual complaints that mean you need more resources and more manpower to be able to deal with individual cases,” she said. “If you build that relationship, you can create a different type of model, and a lot of CMCs are in favour of having those agreements in place.”

The encouraging news for lenders and brokers is that the changes implemented by lenders, brokers and car dealers to more clearly disclose commissions and secure consent forms, in the wake of the Court of Appeal’s surprise decision last October, have had no impact on demand for consumer motor finance, said Ian Plummer, Commercial Director of Autotrader.

These changes may not, however, be enough to satisfy regulators going forward as they apply a magnifying glass to the industry’s duty to customers. The FLA’s Dally suggests fiduciary duty to customers may be replaced by a disinterested duty, “which basically means that the dealer, the broker and the lender should not drive their decisions based on their own interests. It’s about the interest of the customer becoming first.”

This would reinforce Consumer Duty, which already promises fair value, avoiding forcible harm, and acting in the interests of customers.

Taking this approach to its logical conclusion suggests that the practice of car dealers having a single preferred lender is “inadvisable,” according to Richard Hoggart, Group Chief Executive Officer, DSG Group, who said the trajectory of the market is towards platforms.

“We need to be trying to offer as near to a whole-of-market solution as possible, ensuring that customers have options and are able to see the choices they have,” he said, adding that referring customers to a single lender to see if they are accepted for finance is not going to work.

This approach poses difficulties for manufacturers that have appointed preferred partners on multi-year contract agreements, said Michael Stewart, Senior Manager, Mazda Wholesale Finance at Mazda Financial Services.

“A lot of the deals we do are subvented [featuring special incentives to make them more enticing to customers], and therefore we have a preferred partner. I can’t imagine that we would spread the net across the whole market and have similar arrangements, so a preferred lender and a secondary, generally at the discretion of the dealer, I see continuing,” he said.

Yet even with open disclosure of commissions, consent forms and the proposal to customers of a comprehensive basket of offers, market research indicates that consumers have a poor understanding of APR and its role as a comparator. Add into the mix the complexity of different mileage arrangements in contracts as well as part-exchange values, and even with the best intentions and actions, the industry might still find itself in the crosshairs of regulators.