Dealerships have long helped consumers to get their car they want through finance, and most car buyers, including the unsophisticated ones, have been happy until recently, points out Jim Saker, emeritus professor of Loughborough University’s business school and president of the Institute of the Motor Industry.
It was in the late 1980s, after the Consumer Credit Act 1974 had fully come into effect in 1985, that I was in a car dealership in North London when a couple came in and commented on the 24% APR that was being offered on financial deals by the organisation.
They then said that they could get 35% APR down the road, at what was in fact a slightly disreputable second-hand car plot, and could the dealership match it?
It was at that moment that I started to have major reservations about the UK education system!
What legally was the dealership’s position when faced with that proposition? Should the organisation protect the customer from their own ignorance?
On August 1, 2025, the Supreme Court went some way in answering those questions in saying that the Court of Appeal was ‘wrong’ to consider that car dealers owed a ‘fiduciary duty’ to customers or that hidden commission payments would account to bribery.
The court rejected the idea that the general public would naively believe that a car salesperson would act only in the customer’s interest when arranging a loan.
The Supreme Court decision makes total sense and if it had not overturned the lower court’s view, that would have caused major challenges to the car finance sector going forward.
The potential for banks to withdraw or limit their activity would risk making the cost of loans more expensive for potential buyers. It would also have opened a can of worms for other sectors who operate in a similar way and who could also attract similar challenges.
The decision presents a push back against the ‘claims’ companies and lawyers who saw a big opportunity to make money from bringing class actions against the finance companies and have spent millions trying to get people to sign up with them.
There will undoubtedly be renewed efforts from them in trying to be involved in the FCA Redress proposals.
The problem that I have is that, at the time most customers, maybe in their ignorance, were happy with the deal that they got from their finance company and dealership.
If they weren’t they wouldn’t have proceeded with the purchase.
Often there have been situations where the dealership was able to offer a finance route for a vehicle which the customer might not have qualified for outside.
Undoubtedly there have been activities such as Discretionary Commission Arrangements where the customer may not have had the full information about how the interest rate was impacted by commission bonuses.
This will be looked at by the FCA and will form the basis of its redress scheme.
The decision of the Supreme Court represents a sensible evaluation of the situation, the challenge will be how the operation of any redress scheme that the FCA feels that it needs to put in place will be operationalised.