Post-Judgment: Strategic insights for the motor finance sector

A recent industry roundtable co-hosted by Shoosmiths and Asset Finance Connect convened stakeholders from across the motor finance and legal sectors to unpack the implications of a landmark Supreme Court judgment and the subsequent regulatory response.

A recent industry roundtable co-hosted by Shoosmiths and Asset Finance Connect convened stakeholders from across the motor finance and legal sectors to unpack the implications of a landmark Supreme Court judgment and the subsequent regulatory response. The session, held under Chatham House rules, provided a candid and multifaceted exploration of the challenges and opportunities now facing the industry. This insight piece provides the key themes and strategic considerations that emerged.

A mixed blessing

The Supreme Court’s decision marked a pivotal moment in the ongoing debate around commission disclosure and fiduciary duties in motor finance. While the judgment clarified that dealers in typical three-party finance arrangements do not owe fiduciary duties to consumers, it also dismantled the long-standing distinction between “secret” and “half-secret” commissions. This has significant implications for how firms assess historical liability and future compliance.

The ruling was broadly welcomed for restoring legal clarity, but it also introduced new complexity. The court’s emphasis on the commercial nature of dealer relationships and rejection of the “disinterested advice” standard was seen as a pragmatic step. However, the reaffirmation of unfair relationship provisions under the Consumer Credit Act means that litigation risk remains, albeit in a more nuanced form.

FCA’s redress scheme and industry concerns

The Financial Conduct Authority (FCA) responded swiftly, signalling its intention to propose a redress scheme that could reach up to £18 billion. This announcement, while expected, raised concerns about tone, scope, and feasibility.

Key industry concerns include:

• Data limitations: Many firms lack records dating back to 2007, the proposed start date for redress. GDPR-driven data purging and inconsistent historical record-keeping pose operational challenges.
• Ambiguity in fairness assessments: The FCA’s language suggests firms will be expected to “decide” whether compensation is owed, implying a case-by-case approach that may be impractical given the volume and complexity of historical agreements.
• Cost of compliance: The administrative burden of implementing a redress scheme—especially one requiring granular assessments—could be disproportionate to the consumer benefit, particularly where compensation amounts are modest.

Despite these concerns, there was recognition that a well-designed scheme could provide clarity and closure, reducing litigation risk and restoring consumer confidence.

Market sentiment and consumer expectations

Interestingly, the market responded positively to the judgment and the FCA’s announcement. Share prices of major lenders and finance providers rose, suggesting relief that the worst-case scenarios had been avoided. However, consumer sentiment is more volatile. The issue has gained traction on social media, with influencers and public figures amplifying expectations of compensation. This has created a disconnect between legal reality and consumer perception, which firms will need to manage carefully.

Surveys indicate that most consumers remain unaware of the issue, and those who are aware often misunderstand its implications. This presents both a challenge and an opportunity: the industry must proactively educate consumers about finance products, commission structures, and the value they receive.

Strategic implications for firms

The discussion highlighted several strategic imperatives for firms navigating this evolving landscape:

• Data governance and audit readiness
  Firms must urgently assess their data capabilities. This includes identifying gaps, verifying retention policies, and preparing for potential regulatory requests. A recurring theme was the risk of discovering unexpected data caches that could undermine previously stated positions.
• Engagement with the FCA consultation
  The upcoming consultation period is a critical window for firms to influence the design of the redress scheme. Stakeholders were urged to provide detailed, evidence-based feedback on:
  • The feasibility of retrospective assessments
  • Definitions of consumer sophistication
  • Appropriate thresholds for commission-related harm
  • Operational costs and proportionality
• Consumer communication and education
  There is a pressing need to shift the narrative from scandal to service. Finance products, particularly PCPs, enable access to vehicles that would otherwise be unaffordable. Firms should invest in clear, accessible content explaining how these products work and the protections already in place.
• Litigation risk management
  While the judgment narrows the scope for fiduciary-based claims, unfair relationship claims remain viable. Firms should review their historical practices, especially around commission disclosure and customer journeys, to assess exposure. The role of claims management companies (CMCs) may diminish, but vigilance is required, particularly around high-profile dealer groups.

Broader market considerations

The implications of the judgment extend beyond motor finance. Asset finance and other broker-led markets may face renewed scrutiny, especially where fiduciary relationships are more plausible. The court’s emphasis on contextual analysis—including the nature of the relationship, marketing materials, and consumer expectations—means that firms in adjacent sectors must also reassess their risk profiles.

There was also discussion of upcoming cases that may further shape the legal landscape. These include appeals related to bundled claims and the potential for further clarification on what constitutes a “material fact” in commission disclosure.

The role of CMCs

The judgment dealt a significant blow to the business model of many CMCs. The loss of the rescission argument and the shift to fact-specific unfairness claims reduces the potential for large-scale pay outs. Regulatory scrutiny of CMC practices is increasing, with both the FCA and the Solicitors Regulation Authority (SRA) investigating misleading advertising and poor consumer outcomes.

While some firms may pivot to new strategies, the consensus was that the current model is unsustainable. This may lead to a reduction in speculative litigation and a more balanced approach to consumer redress.

Conclusion

The motor finance sector stands at a crossroads. The Supreme Court judgment has provided clarity but also exposed new complexities. The FCA’s proposed redress scheme, while well-intentioned, must balance consumer protection with operational feasibility. Firms must act swiftly to audit their data, engage with the consultation, and communicate effectively with consumers.

Above all, this moment presents an opportunity to reset the narrative. By focusing on transparency, education, and fair outcomes, the industry can rebuild trust and demonstrate the value it provides to millions of consumers.