Following the 01.08.25 Supreme Court decision, the FCA will consult on a car finance commission redress scheme that consumers can access directly for free. You can complain to your lender and the Financial Ombudsman Service now for free. If the firm has failed and you’re eligible, you can claim via the FSCS for free. We are a Claims Management Company (CMC). It's important to understand you don’t need to use a CMC - it's optional. We charge on claim success only (fees range from 18% to 36% inc. VAT of compensation). See "our fees" for details,

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Commission: Two types of claims for compensation explained

Posted on 13 August 2025 by Stephen Griffiths

In UK motor finance loans, ‘commission’ refers to payments made by lenders to car dealers or brokers for arranging car loans. The controversy stems from the size of some commission payments and the lack of disclosure about the terms and conditions of the arrangement. Or, the commission arrangement meant that the customer had a much more expensive car loan.

The regulator, the Financial Conduct Authority (FCA) is consulting on an industry-wide scheme to compensate customers for mistreatment in relation to car finance commissions. The FCA explains:

“We will propose that the scheme covers discretionary commission arrangements (DCAs) – where the broker could adjust the interest rate offered to a customer – if they were not properly disclosed.

We will also consult on which non-discretionary commission arrangements should be included. This is because the Supreme Court decision in the Johnson case, which did not include the payment of any discretionary commission, makes clear that non-disclosure of other facts relating to the commission can make the relationship unfair.”

“Our advice remains that consumers concerned that they were not told about commission and who think they may have paid too much for the finance, should complain now””[1]

1. Discretionary Commission

In brief:

Banned in 2021, this was where the car dealership would have the power (or discretion) to alter the interest rate on the customer’s car loan, due to a backroom deal between the car dealership and the lender. Usually, the more the car dealer increased the interest rate on the loan, the more commission they would earn for themselves, at the customer’s expense. Some people in the industry, including the regulator itself, have began to question whether customers should be compensated for these commission arrangements prior to the 2021 ban. Unsurprisingly, this suggestion has been met with resistance by the lenders.

The court case:

R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd [2024] EWHC 3237 (Admin)[2]

Clydesdale (trading as Barclays Partner Finance) took the Financial Ombudsman Service (FOS) to court about a decision one of its Ombudsman made. The Ombudsman had ruled in favour of the customer in regards to a complaint about discretionary commission. The Ombudsman had ruled that Barclays Partner Finance needed to compensate the customer for the unfair discretionary commission arrangement. Clydesdale lost this court case – as the Judge sided with FOS. This case is seen by many as an endorsement of FOS’s approach to complaints about discretionary commission, indicating that FOS will continue to uphold such cases in the customer’s favour, where the evidence supports such a decision.

Case study:

Ms Lewis

In November 2018, Ms Lewis visited an Arnold Clark showroom in Liverpool to buy a car. Like many buyers, she needed a loan to make the purchase. Arnold Clark introduced her to Barclays Partner Finance (trading as Clydesdale Financial Services), and Ms Lewis entered into a finance agreement to borrow the money she needed for the car.

This finance agreement wasn’t as simple as it seemed. Behind the scenes, Arnold Clark, acting as a broker, set the interest rate on Ms Lewis’s loan. The interest rate wasn’t fixed by Barclays – it was determined by Arnold Clark within a range Barclays allowed. The higher the interest rate Arnold Clark chose, the more commission they earned from Barclays. In Ms Lewis’s case, Arnold Clark selected an interest rate of 4.67% (equivalent to 8.9% APR), earning themselves £1,326.60 in commission.

Example lenders:

Lenders known to have used discretionary commission:

Barclays Partner Finance, BMW Financial Services, Alphera, Blackhorse, Santander Consumer Finance, Mercedes Benz Financial Services, and others…

 2. ‘Unfair’ commission

In brief:

This is where there are different factors about the commission arrangement, which come together to create an ‘unfair relationship’ under the Consumer Credit Act. An ‘unfair relationship’ under the Consumer Credit Act can arise where the terms of a credit agreement or the way it is sold create a significant imbalance between the lender and borrower. Contributing factors can include a large, undisclosed commission paid to intermediaries, the failure to clearly and prominently inform the borrower about such commissions or key commercial arrangements, and documentation that gives a misleading impression about the lender’s independence or available options. When important costs or relationships are not transparent and disclosures are buried in small print or overshadowed by other terms, the overall effect can be to deprive the borrower of informed choice, leading a court to find the relationship unfair.

The court case:

Johnson v FirstRand Bank Ltd (London Branch) t/a Motonovo Finance and Close Brothers Ltd [2025] UKSC 35[3]

In August 2025, the UK Supreme Court handed down its decision in the joined motor‑finance commission appeals (Johnson v FirstRand Bank Ltd, Wrench v FirstRand, and Hopcraft v Close Brothers). The Court overturned key parts of the Court of Appeal’s 2024 rulings. It held that car dealers who arrange finance do not owe customers a special “fiduciary” duty of single‑minded loyalty, and that the mere payment of commission (even if not fully disclosed) does not automatically make the deal unlawful or a ‘bribe’. Dealers are entitled to act as arm’s‑length sellers pursuing profit. However, the Court did uphold Mr Johnson’s claim that his deal created an ‘unfair relationship’ under section 140A of the Consumer Credit Act 1974 and ordered the lender to repay the commission to him with interest.

The most senior court in the UK has sent a powerful message that certain commission arrangements are unlawful, if certain factors apply. Some commentators suggest that this means commission cases each need to be looked at on a case-by-case basis to see if they share similarities with Mr Johnson’s arrangement being deemed by the Supreme Court as ‘unfair’.

Case study:

Mr Johnson

In mid‑2017, Mr Johnson, a factory supervisor buying his first car, went to The Trade Centre Wales in Cardiff. He chose a used Suzuki Swift priced at £6,499, paid a £100 holding deposit, and completed the purchase on 29 July 2017. Because the Glass’s Guide valuation sat below the price, he was offered a combined MotoNovo/FirstRand package (hire‑purchase plus a small personal loan) rather than the single finance he’d originally hoped for. The HP and loan together totalled about £6,399, with a 60‑month term; the HP APR was 18.1% and the loan APR 15.1%.

Behind the scenes, FirstRand paid the dealer a commission of £1,650.95 under their “Rates and Terms Agreement”. That included a “revenue share of advance” equal to 25.8% of the total credit advanced. The Supreme Court described the undisclosed commission as very high – about 25% of the advance and roughly 55% of the total charge for credit – which strongly indicated unfairness. The paperwork Mr Johnson signed (but did not read) suggested the dealer would source products “from a select panel of lenders”, yet there was an undisclosed commercial tie giving FirstRand a right of first refusal over the dealer’s finance business. The Court accepted that Mr Johnson hadn’t read the documents, but noted he was a commercially unsophisticated consumer and the relevant statements lacked prominence. Taking all of this together – the size of the hidden commission, the misleading impression about the panel, and the undisclosed tie – the relationship was unfair under s140A. The remedy: FirstRand must pay Mr Johnson the commission sum, with appropriate interest.

Example lenders:

Lenders who have potentially provided unfair commissions:

Advantage Finance, Bank of Scotland, Carmoola, First Response Finance, Halifax, Moneybarn, Oodle Car Finance, Oplo, Tandem, 1st Stop Finance, and others…

 

[1] https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers

[2] https://caselaw.nationalarchives.gov.uk/ewhc/admin/2024/3237

[3] https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_updated_1a7a7e127d.pdf

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Following the 01.08.25 Supreme Court decision, the FCA will consult on a car finance commission redress scheme that consumers can access directly for free. You can complain to your lender and the Financial Ombudsman Service now for free. If the firm has failed and you’re eligible, you can claim via the FSCS for free. We are a Claims Management Company (CMC). It's important to understand you don’t need to use a CMC - it's optional. We charge on claim success only (fees range from 18% to 36% inc. VAT of compensation). See "our fees" for details,