Motor Finance Redress: What the 1 August Ruling Means – and What Lenders Should Be Doing Now

On Friday 1 August 2025, the UK Supreme Court issued a landmark judgment on commission arrangements in the motor finance sector. This ruling followed an earlier Court of Appeal decision that raised alarm across the industry by suggesting any commission-based arrangement could be subject to redress on either the basis that the broker owed a fiduciary duty to the consumer or that the arrangement between the lender and the consumer was “unfair”. That created significant uncertainty for lenders, with wide-spread comparisons drawn to the scale of the Payment Protection Insurance (PPI) redress programme.

The Supreme Court has now partially overturned the Court of Appeal’s views – it has found that brokers do not owe consumers a fiduciary duty.  It did find, however, that depending on a number of factors, lenders may have entered “unfair” relationships with consumers as defined under the Consumer Credit Act.  The lending industry was relieved with this outcome as could be seen in the immediate effect on their share prices.  But what is this going to mean in practice?   

Which commission agreements are affected?

The clarity the Supreme Court judgment brought has been widely welcomed but it has not necessarily brought certainty as to which loan agreements are subject to redress.

There is a wide-spread consensus that all Discretionary Commission Arrangements (DCAs) – where brokers had the ability to change or inflate the commission, potentially increasing the cost to the customer without disclosure – are in scope where the commission arrangements were not properly disclosed.  However, there is some uncertainty as to whether some non-DCA arrangements will also be within scope. 

It is worth noting that the Supreme Court decision in the Johnson case did not involve a DCA arrangement which is why non-DCA arrangements may need to be considered as well.  This is an area on which the FCA will be giving further thought and consulting.

It is interesting to note that the FCA has said that there are 500,000 non-DCA cases where the commission was in excess of 40% of the total interest and in excess of 20% of the loan amount. Whilst we are urged to not  draw any conclusions to the 40% and 20% figures, it is likely that there will be a material number of non-DCA loans in scope.

The bigger issue on scope is how far back lenders will need to go.  The FCA is likely to propose that all loans since 2007 are likely to be within scope.  This is likely to draw considerable pushback from lenders on two grounds.

• Limitation – there is an argument that only loans entered into since 2014 should be in scope from a limitation perspective.  The FCA seems determined that 2007 is the right date so we will watch to see how this plays out.
• Data and records – the further back we go, the larger the issues regarding the availability of data will become. Many lenders will not have full details of their loan book going back to 2007 which will cause issues.  Lenders will need to work with the dealers they worked with to help fill any data gaps they have.

The most complex part of the redress exercise will be to decide which in scope loans meet the conditions for “unfairness”.  The Supreme Court set out some measures which could be used but stated that the list was not exhaustive.  Included on the list are:

• The size and nature of the commission relative to the total interest and/or the total loan
• The level of disclosure regarding the payment of commission
• The consumer’s level of sophistication
• The level of compliance with the relevant legislation and rules

The FCA will need to consider these, and other, issues in drafting its redress scheme.  The outcome will surely be a very complex matrix to be worked through on a case-by-case basis.  Even the size and nature of the commission will not be straightforward in all cases.  There will be cases where the interest rate may have been nil or low for a period of time, or variable to some extent over the period of the loan.  Trying to express the level of commission as a simple percentage may be somewhat tricky.

There are also subjective elements in the list – especially around the level of consumers’ financial sophistication.  Even with clear direction, there is bound to be different interpretations by lenders as they work through the process.

This will be one of the key areas for the FCA to address and it’s one where they have not been given too much of a steer by the Supreme Court.

What the FCA is doing next

Following the judgment, the FCA has confirmed that it will launch a consultation under the Financial Services and Markets Act. This will shape the design of the redress scheme.

The consultation will cover:

• The scope of the scheme – whether to include non-DCA arrangements and how far back do we look
• The calculation methodology for redress
• The interest to be added to payments
• What timelines and standards apply to delivery
• Whether consumers will need to opt into the scheme

The FCA has said it will publish the consultation in October 2025. No payments are required until the scheme is confirmed. But preparation is essential.

The potential approaches to redress that the FCA will consider

The FCA has said that it will consult on the methodology to be used for the redress calculation.  It is possible that this could be a complex calculation in line with how the FOS approaches redress where there is a repayment of excess interest. It is worth noting, though, that in the context of the likely large administrative costs (it has quoted several billion pounds) and that one of the principles it will follow in its redress scheme is simplicity and cost-effectiveness, it may seek a more straightforward method.

What is striking in both the Supreme Court decision and the subsequent announcements from the FCA is the focus on the commission itself.  The decision was that Mr Johnson be repaid the commission (plus interest) and the FCA has said it is unlikely that any redress will exceed the level of commission paid.  We may well see that the complexity in working through which cases are eligible for redress will be balanced by a simple redress methodology itself. 

What lenders need to do now

Although the calculation methodology is not yet finalised, lenders can act now to prepare. This preparation will significantly reduce operational and regulatory risk once the scheme is live.

Lenders should continue assessing the quality and completeness of historic motor finance data — including customer information, agreement terms and interest rates, broker identities, commission structures, and disclosure records. Identifying gaps at this stage will allow lenders to recover or reconstruct information in advance of the FCA’s final framework.

It is also important to determine which agreements involved DCAs and whether those arrangements were disclosed at the time of sale. Similarly, agreements without DCA will also need to be assessed to check on the level of disclosure at the time.    Records should be clear, traceable, and ready to support or challenge potential redress claims.  Lenders may need to work with the brokers they used to help fill the gaps where they exist.

Segmenting the loan book based on broker, agreement type, or data quality will support a more strategic response. This will help prioritise where redress may be necessary and where further validation is required.

Many of the loans in scope may have closed years ago. While Broadstone does not provide tracing services, lenders should assess whether customer tracing may be required and begin planning for it now. We work with trusted partners to support this step when needed.

Why early preparation matters

The Supreme Court has clarified, in part, the scope of redress. The FCA is now designing how that redress must be delivered.

Lenders who act now will be better placed to respond quickly when the framework is finalised. Early action reduces operational disruption and reputational risk, provides clarity to stakeholders, and ensures the business is ready to deliver fair outcomes to affected customers.

With Broadstone, lenders gain a partner with proven expertise in both motor finance and redress programmes — and the operational tools to manage the process end to end.

What’s next

The FCA’s consultation is expected by October 2025. That gives the industry a short, but critical, window to prepare. Now is the time to assess your historical data, identify where DCAs may have been used, and resolve any known gaps. Most importantly, it is the right time to engage with a delivery partner who can combine analytical expertise with regulatory understanding.