For several years, many UK drivers were told that if their car finance agreement included a discretionary commission arrangement, they could automatically be entitled to compensation. The logic appeared simple. If a dealer could increase the interest rate to earn more commission, the agreement must be unfair.
That understanding changed significantly following the Supreme Court judgment delivered on 1 August 2025. In three linked cases, Wrench v FirstRand, Hopcraft v Close Brothers, and Johnson v FirstRand, the Court clarified that a discretionary commission arrangement alone does not make a finance agreement unfair under UK law.
Only one claimant succeeded. The case of Marcus Johnson was upheld because his agreement involved additional features that went beyond the commission model itself. This ruling reshaped how courts, regulators, and consumers now assess unfair car finance relationships.
Why Commission Alone Is No Longer Enough
A discretionary commission arrangement allows a dealer to adjust the interest rate within a range set by the lender. Higher interest means higher commission for the dealer.
In the Wrench case, the finance paperwork stated that the dealer may receive commission. Although the wording was brief and not heavily highlighted, the Supreme Court ruled that it was sufficient to prevent the payment from being classed as secret or unlawful. Because of this disclosure, the agreement was not automatically unfair.
This confirmed a crucial point. Courts will no longer treat all discretionary commission arrangements in the same way. Instead, they will look for additional factors that, when taken together, make the overall relationship unfair to the consumer.
The Legal Framework Behind Unfair Relationships
The legal foundation for these cases sits in Section 140A of the Consumer Credit Act 1974. This provision gives courts wide discretion to intervene where the relationship between lender and borrower is unfair.
Unfairness can arise from the terms of the agreement, how the agreement was entered into, or any act or omission by the lender or broker. Importantly, a consumer does not need to prove dishonesty or bad faith. The question is whether the relationship, viewed as a whole, placed the borrower at an unfair disadvantage.
This same legal reasoning now underpins the Financial Conduct Authority’s proposed redress scheme, which aims to resolve historic cases without requiring court proceedings.
Additional Factors Courts Now Examine
Courts do not assess unfairness based on one single issue. They consider a combination of factors that together paint a picture of how the agreement operated in practice.
1. Size and Impact of the Commission
In Johnson v FirstRand, the dealer received commission equal to roughly 55 percent of the total cost of credit. The Court viewed this as excessive.
When commission makes up such a large proportion of borrowing costs, it can distort the agreement and undermine a consumer’s ability to make a fair comparison. Even where commission is disclosed, its sheer size may still contribute to unfairness.
2. How and When Disclosure Was Given
Disclosure must be meaningful, clear, and timely. Courts have stressed that simply stating that a dealer may receive commission is not always enough.
In Johnson, commission wording existed but was not prominent or explained. The Court found that this prevented the consumer from understanding how the dealer’s incentives might affect the interest rate offered.
Information buried in small print or provided after key decisions are made is unlikely to satisfy fairness standards.
3. Whether the Consumer Truly Understood the Deal
Modern unfair relationship cases focus heavily on consumer understanding, not just documentation.
Courts consider whether a reasonable consumer would have grasped what the commission meant and how it influenced the deal. If paperwork technically contains the right wording but no explanation is given, consent may not be genuinely informed.
The FCA has echoed this view, stating that fairness depends on real understanding, not box ticking.
4. Hidden Exclusivity or Limited Choice
In Johnson, the dealer had a right of first refusal arrangement with the lender. This meant the lender had priority access to finance deals, even though customers were led to believe multiple lenders were being considered.
The Court found that this restricted genuine choice and contributed to unfairness. Exclusivity is not automatically unlawful, but failing to disclose it clearly can mislead consumers and tip the balance.
5. Evidence and Record Keeping
Evidence plays a decisive role in these cases. Firms that can demonstrate clear disclosure and customer acknowledgment are in a much stronger position.
Where records are missing or incomplete, courts may infer that disclosure did not occur. This principle is reflected in the FCA’s consultation, which proposes presumptions in favour of consumers when documentation cannot be produced.
Communication practices such as sales scripts, emails, and standard forms may all be examined to assess overall fairness.
6. Proportionality and Commercial Justification
Courts accept that commission is a legitimate part of commercial finance. The issue arises when commission is disproportionate to the service provided.
If the consumer’s borrowing costs are inflated beyond what is commercially reasonable, or if information asymmetry prevents informed choice, the relationship may be deemed unfair.
This proportionality test allows courts to distinguish normal business practice from exploitation.
7. Misleading or High Pressure Conduct
Even where commission models are lawful, misleading behaviour can still create unfairness.
Courts examine whether dealers implied they were acting as advisers, overstated benefits, discouraged comparisons, or rushed customers into agreements. Under the FCA’s Consumer Duty, such conduct may now also trigger regulatory consequences.
Why Fixed Commissions Are Treated Differently
In Hopcraft v Close Brothers, the dealer received a fixed commission that did not vary with the interest rate. Because there was no incentive to increase the rate, the conflict of interest was reduced.
Although disclosure was limited, the Court ruled it was sufficient. Without additional aggravating features, the agreement was not unfair. This explains why fixed commission cases are harder to challenge unless other problems are present.
The FCA’s Role Going Forward
The Financial Conduct Authority has played a central role in reshaping how unfair car finance relationships are addressed. It banned discretionary commission arrangements in January 2021 and, following the Supreme Court ruling, moved to tackle historic cases through a structured, industry wide redress scheme.
In October 2025, the FCA published Consultation Paper CP25/27, setting out proposals to review agreements made between April 2007 and November 2024. The scheme focuses on situations involving inadequate disclosure, excessive commission, and restricted consumer choice. Legal specialists, including Consumer Rights Solicitors, have closely followed these developments, given their significance for consumers seeking clarity on whether historic agreements may qualify for redress.
Under the proposed framework, lenders would identify affected customers and calculate compensation, while the Financial Ombudsman Service would apply the same rules to new complaints. Where firms cannot provide adequate records, rebuttable presumptions would favour consumers. The FCA’s working estimate suggests average compensation of around £700 per agreement, with final rules expected in early 2026.
References
Supreme Court of the United Kingdom (2025). Wrench v FirstRand Bank Ltd; Hopcraft v Close Brothers Ltd; Johnson v FirstRand Bank Ltd. Judgments delivered 1 August 2025.
Consumer Credit Act 1974. Sections 140A to 140C.
Financial Conduct Authority (2025). Consultation Paper CP25/27: Motor Finance Consumer Redress Scheme. Published 7 October 2025.
Financial Conduct Authority (2025). FCA to consult on a compensation scheme for motor finance customers. Statement 3 August 2025, updated 4 August 2025.
Financial Conduct Authority (2021). Policy Statement PS20/8: Motor finance discretionary commission models and consumer credit transparency.