Supreme Court judgment in Hopcraft appeals: Defining the legal boundaries of broker-lender relationships in motor finance

Introduction

Across the consumer finance ecosystem, firms have been watching and waiting for the UK Supreme Court’s decision in the ‘Hopcraft’ appeals. The earlier Court of Appeal decision sent shockwaves throughout the sector, and across other intermediated distribution models in retail / consumer financial services. 

Our combined Financial Services and Risk Advisory practice has been closely monitoring Hopcraft and has been advising a major UK trade association on its implications. We also have extensive experience in supporting firms in the consumer finance sector in relation to historic misconduct and remediation which includes acting as a Court appointed adjudicator on several schemes of arrangement in the consumer finance sector, arising out of redress liabilities.

In this briefing note we set out the background to the appeals, the issues the Supreme Court was asked to determine, and the key points from the Supreme Court’s judgment which has recently been issued and its implications for the motor finance sector. We then cover both the Financial Conduct Authority’s (FCA) and Government’s response to the judgment, and then discuss what steps those in the motor finance industry should be taking next.

Brief facts

For those unfamiliar with the facts of Hopcraft, the Supreme Court’s website summarises them as follows:

• In each of the three linked appeals, the claimants were considered by the Court of Appeal to be financially unsophisticated consumers on relatively low incomes who, prior to January 2021, engaged car dealers as their credit brokers to arrange hire-purchase agreements (and in one case, an additional personal loan) with lenders on their behalf, to enable them to acquire a second-hand car for less than £10,000. On each relevant occasion, only one offer of finance was presented to, and accepted by, the claimant. 
• In each case, the car dealer made a profit on the sale of the car but also received a commission from the lender for introducing the business to them.  The cases included both a discretionary commission arrangement (DCA) and non-discretionary commission arrangements (non-DCAs).   From January 2021, DCAs (where the dealer has an interest in increasing the interest rate on the loan) were banned by the FCA.
• In the Hopcraft case, the commission was kept secret from the claimants. In the cases of Wrench and Johnson, the claimant did not know and was not told that a commission would be or was paid, but the lender’s standard terms and conditions made reference to the fact that commission may be paid. In the Johnson case, the dealer (acting as credit broker) also supplied the claimant with a document, which the claimant signed, indicating that the dealer may receive a commission from the lender.
• Each of the claimants commenced proceedings in the County Court against the lenders, seeking, among other avenues of resolution, the reimbursement of commission payments that may have been made to the credit brokers. 
• The three claimants contended that the brokers owed them a duty to provide information, advice or recommendation on a “disinterested” basis. The Hopcrafts’ case, and Mr Wrench’s primary case, was that the commission paid to the credit broker was secret. Mr Johnson’s case, and Mr Wrench’s alternative case, was that, even if the lender did not pay a secret commission, the brokers never obtained the claimants’ fully informed consent to the payment.
• Mr Wrench’s claim was successful before a District Judge at first instance but a Circuit Judge allowed the lender’s appeal. Mr Johnson’s claim was unsuccessful at first instance and on appeal. The Court of Appeal granted permission for a second appeal in both cases. The Hopcrafts’ claim was unsuccessful at first instance and the first appeal to the Circuit Judge was then transferred to the Court of Appeal. 
• The customers were all successful in the Court of Appeal either on the basis of the tort of bribery or on the basis of dishonest assistance by the lenders in a breach of fiduciary duty by the brokers. Mr Johnson was also successful in his unfair relationship claim under the Consumer Credit Act 1974 (CCA 1974) (the other claimants had not pursued such claims).

The issues that were considered

The Supreme Court was asked to determine the following: 

Does a car dealer who receives a commission from a lender for arranging finance in a tripartite transaction between customer, dealer, and lender in which a car is bought on credit owe a duty to the buyer of the car such as to enable that buyer (absent the requisite level of disclosure) to bring a claim against the lender for bribery or dishonest assistance, or under the Consumer Credit Act 1974?

And this included the determination of four sub-issues: 

• Does, or should, the law recognise a distinct tort of bribery? 
• If such a tort is recognised, what is the nature of the duty or relationship (here between dealer and customer) that must exist in order for the tort to be engaged?
• Relatedly, what level of disclosure will prevent liability for bribery from arising? 
• In Mr Johnson’s case, was the relationship between customer and lender “unfair” for the purposes of the CCA 1974?

The Supreme Court heard various submissions on these points from the parties and also from two interveners (the FCA and the National Franchised Dealers Association). 

What has the Supreme Court decided?

The Supreme Court has allowed the appeals brought by the finance companies except that it upheld Mr. Johnson’s claim that the relationship between him and the lender was unfair and he was awarded the amount of the commission plus interest.

The Supreme Court’s judgment makes a number of interesting points on the issues including: 

• A motor dealer acting as a regulated credit broker does not owe a fiduciary duty to prospective borrowers for whom it arranges motor finance. The Supreme Court found that a fiduciary obligation of loyalty could not be implied in law or in fact. 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. It added that any “element of trust and confidence that the dealer will secure the best available finance package is not of the type where the customer trusts the dealer to act with single-minded loyalty towards the customer, to the exclusion of its own interests.” 
• That where a motor dealer acts as a regulated credit broker the transaction does not give rise to a fiduciary duty sufficient to create liability for bribery either under the common law tort or pursuant to the principles of equity. The Supreme Court concluded, contrary to the Court of Appeal’s analysis, that the tort of bribery is not engaged by anything other than the receipt of a benefit by a person who is subject to a fiduciary duty to which the beneficiary of that duty has not given fully informed consent. The Supreme Court stated that the “transactions under review do not give rise to a fiduciary duty sufficient to create liability for bribery either under the common law tort or pursuant to the principles of equity. They 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 … An offer to find the best deal is not the same as an offer to act altruistically.”
• That the regulatory regime is not premised on car dealers (when acting as credit brokers) having the obligations of a fiduciary.  In particular, the Supreme Court found that “the rules and principles in the Financial Conduct Authority Handbook that apply to lenders and dealer brokers do not mirror the more rigorous duties of a fiduciary in relation to the exclusion of self-interest, the disclosure of information and the avoidance of conflicts of interest.”
• The Court of Appeal was wrong in Hurstanger to identify a separate category of case concerning partially disclosed commissions. A fiduciary’s liability to account for profits made in breach of his duties can be avoided if full disclosure (of all material facts) is made and the principal gives his or her fully informed consent. What amounts to full disclosure will depend on the circumstances. The same requirement of disclosure applies for the purposes of the common law of bribery as in equity, and the Court of Appeal in Hurstanger v Wilson [2007] 1 WLR 2351 was wrong to hold otherwise.
• That the Court of Appeal had made certain errors that vitiated its decision on whether the commission arrangements amounted to an ‘unfair relationship’ for the purposes of section 140A CCA 1974.  While in other cases the supply of a vehicle at an inflated price could be highly relevant to whether the relationship of lender and customer was unfair, the Court of Appeal should not have placed any reliance on whether Mr Johnson had made a bad bargain in the sense of paying considerably above the market value of the car as the discrepancy between the sale price and the market value was not explored at trial.

Unfair relationship under s140A CCA 1974

Rather than remit the issue back to a District Judge, the Supreme Court decided the issue of unfairness for itself. The starting point was the unfairness test under section 140A CCA 1974 and the Supreme Court noted that the test in the section permits courts to take into account a very broad range of factors and that it is highly fact sensitive. In particular, it added that the “mere fact that there has been no disclosure or only partial disclosure of the commission will not necessarily suffice to make the relationship between lender and customer unfair. It is a factor to be taken into account in the overall balancing exercise.”

Of Mr Johnson’s case the Supreme Court noted three further relevant factors. First, it was of the view that, as the undisclosed commission was so high (amounting to 25% of the advance of credit and 55% of the total charge for credit), this was a powerful indication that the relationship was unfair. Second, the Supreme Court found that it was “highly material” that the documents provided did not disclose the existence of a commercial tie between lender and the dealer in which the lender had a right of first refusal (instead the documents created the false impression that the dealer was offering “products from a select panel of lenders” and recommending “the Consumer Finance product that best meets your individual requirements”). And third, although Mr Johnson failed to read any of the documents provided by the dealer, the Supreme Court asserted that he was commercially unsophisticated and it was questionable to what extent a lender could reasonably expect a customer to have read and understood the detail of such documents. Also, no prominence was given to the relevant statements in the documents.

Key implications for the motor finance sector

The Supreme Court’s decision that fiduciary duties are not to be found where the intermediary has an independent commercial interest will come as a huge relief to the motor dealer and auto finance industries. The renewed certainty around the ongoing ability to provide finance to customers will clearly be welcomed.

However, the Supreme Court’s finding that there was an unfair relationship under s. 140A CCA 1974 still means that lenders face the possibility of historic liabilities particularly where large commissions have been paid. On this point, the FCA is proposing to consult on establishing a redress framework (see further below).

The FCA

The rules and obligations specific to consumer credit brokers and lenders are set out in the Consumer Credit sourcebook, CONC, which came into force on 1 April 2014, when the FCA assumed responsibility for consumer credit regulation from the Office of Fair Trading. In January 2021, CONC 4.5.6R introduced an outright ban in respect of DCAs in relation to motor finance agreements. In addition, as part of the package of measures giving effect to this ban, the FCA updated CONC 4.5.3R so as to clarify that the nature and existence of commission arrangements should be disclosed prominently if knowledge of the existence or amount of commission could actually or potentially affect the broker’s impartiality in recommending the product or have a material impact on the customer’s transactional decision. As such, brokers are required to disclose the likely or known amount of commission, fee or other remuneration they receive, in good time before a regulated credit or consumer hire agreement is entered into, if the customer requests it (CONC 4.5.4R). Further information on the relevant FCA rules can be found in the FCA’s letter to the House of Lords financial services regulation commission. 

Whilst the cases were being considered by the courts the FCA announced in January 2024 that it was reviewing whether motor finance customers had been overcharged due to the past use of DCAs. It also paused an eight-week deadline for motor finance firms to provide a final response to relevant customer complaints. The FCA then wrote to motor finance firms in April 2024 reminding them that they must maintain adequate financial resources at all times. Following a consultation in July 2024, the FCA issued a policy statement, PS24/11, in which it confirmed its extension of the DCA complaint handling pause until 4 December 2025. In a further policy statement published in December 2024, PS24/18, the FCA extended the complaint handling pause to 4 December 2025 to non-DCAs. 

Prior to the publication of PS24/11, in March 2025, the FCA published a statement on its next steps in relation to the motor finance review in which it noted the ruling by the Court of Appeal which raised the possibility of widespread liability among motor finance firms wherever commissions were not properly disclosed to customers. The FCA confirmed that if, taking into account the Supreme Court’s decision, it concluded that motor finance customers had lost out due to widespread failings by firms, then it was likely to consult on an industry-wide redress scheme. The FCA stated that it would confirm within 6 weeks of the Supreme Court’s decision whether it would propose a redress scheme and, if so, how it would take that forward. Its next steps on non-DCAs would also be informed by the outcome of the case. There may also be a separate consultation on changes to the FCA’s rules, depending on the Supreme Court’s decision. 

On 5 June 2025, the FCA issued a statement setting out certain things it will need to consider should it introduce a redress scheme as part of its review into motor finance commission arrangements. The statement covered both the principles of the redress scheme and its scope. The principles – comprehensiveness, fairness, certainty, simplicity and cost effectiveness, timeliness, transparency and market integrity – would guide the FCA when designing a redress scheme.

The day before the Supreme Court delivered its judgment the FCA and the Solicitors Regulation Authority issued a warning to law firms and claims management companies as regards their handling of motor finance commission claims. The warning highlighted the requirement placed on them to inform their clients of a redress scheme which the clients could themselves pursue, free of charge. 

FCA redress scheme

Following the Supreme Court’s judgment the FCA issued a statement two days later, on 3 August 2025, in which it confirmed that it will consult on an industry-wide redress scheme to compensate motor finance customers who were treated unfairly. The FCA will issue its consultation on the redress scheme by early October and for it to be open for 6 weeks. It will then aim to finalise the rules such that the scheme can launch in 2026, with consumers starting to receive compensation next year.

The FCA will propose that DCAs are covered by the redress scheme– where the broker could adjust the interest rate offered to a customer – if they were not properly disclosed. It will also consult on which non-DCAs should be included and whether there should be a de minimis threshold to be eligible for a compensation payment. It has not yet decided whether to propose an opt-in or opt-out scheme.

In the consultation the FCA will consult on how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of redress scheme and if so, what compensation should be paid. The FCA will consider a range of factors and this will include if and how factors such as the non-disclosure of the nature and size of the commission, tied commercial relationships and customer sophistication should be factored in. It also plans to consult on an interest rate for each year of the redress scheme based on the average base rate that year plus 1%. This would be in the ballpark of a simple interest rate of 3% per annum.

The FCA anticipates that the total costs to motor finance lenders could be between £9 billion and £18 billion although it will probably land somewhere in the middle — significantly lower than previous forecasts of £44 billion.

The FCA currently estimates that most individuals will probably receive less than £950 in compensation per agreement. The FCA is of the view that the redress scheme should cover agreements dating back to 2007 so that this is consistent with the complaints the Financial Ombudsman can consider although the regulator is discussing this with the Government.

The Government

Previously, the Government tried to intervene in the Supreme Court’s proceedings. HM Treasury unsuccessfully argued that it should be able to provide submissions to the Supreme Court given the outcome stood to cause “considerable economic harm”. The Supreme Court dismissed this argument and in its judgment it noted that “draft submissions clearly expressed the apprehension within Government as to the national economic consequences of the Court of Appeal’s decision, it provided  nothing of substance either as to the relevant law or context.”

A week before the Supreme Court delivered its judgment it was widely reported in the press that HM Treasury had drawn up contingency plans should the entirety of the Court of Appeal ruling be upheld. Such plans were based on the Government retrospectively changing the law. Whilst rare there have been instances in the past where governments have taken this course of action with the most often cited recent example being in 2013 when the Coalition Government pushed through the Jobseekers (Back to Work Schemes) Act, in order to “protect the national economy” from a £130m payout to those whose benefits were stopped after they refused to take on unpaid work for private companies.

It now appears that the Government will not take such drastic action. In response to the Supreme Court’s judgment, HM Treasury has stated that “it will now work with regulators and industry to understand the impact for both firms and consumers." It is also clear that the FCA is engaged in discussions with the Government in connection with the redress proposal. 

Next steps for firms

Firms in both the motor finance industry and the wider consumer finance industry will need to carefully consider the Supreme Court’s judgment regarding the unfairness test in s. 140A CCA 1974 and consider how it might respond to any FCA consultation regarding a redress scheme for DCAs and non-DCAs. This includes planning for any redress scheme including the extent to which any redress process could be automated, and what information and resources would be needed. 

There is also the question of what will happen outside the motor finance industry, i.e. the potential for claims / complaints being made by those falling outside the redress scheme but who consider they are in a similar position to motor finance customers. For those firms in this position, it may be prudent to review their processes and documentation against the Supreme Court’s judgment and s. 140 CCA 1974 and make an assessment of potential liabilities.

As mentioned earlier the FCA’s prudential rules require regulated firms to maintain adequate financial resources. Firms impacted by the Supreme Court’s judgment will need to update their estimates of their potential liabilities and ensure that they have sufficient provisions, increasing them where necessary. Firms with listed securities must also keep the market properly informed.

The industry body, UK Finance, has issued six priorities for motor finance firms ahead of a redress scheme. 

Our combined Financial Services and Risk Advisory practice has extensive experience in supporting firms in relation to historic misconduct and remediation. Our agile team of financial services legal and compliance professionals, which includes litigators and restructuring and insolvency specialists combines to offer an integrated solution for clients; working at pace to assess options and deliver practical solutions.

If you would like to discuss the ways in which we can support your firm please contact us.