In Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282 (“Johnson v FirstRand Bank”), the Court of Appeal held that, in certain circumstances, car dealers who double-hat as credit brokers and arrange for a lender to provide motor finance to a customer may only receive a commission from the lender if this had been disclosed to the customer, and the customer’s fully informed consent was obtained.
In this article, we discuss how motor finance discretionary commission cases were previously regulated by the Financial Conduct Authority (“FCA”) and how the decision in Johnson v FirstRand Bank has altered the legal position on motor finance commission arrangements, including both discretionary and non-discretionary commission models. We also consider subsequent judicial developments, including the grant of permission to appeal by the Supreme Court, and some of the wider potential implications of this ruling for the consumer finance sector in the UK.
I. FCA’s toughening stance in motor finance commission cases
The FCA has long been concerned that poor disclosure practices in the motor finance market, along with discretionary commission arrangements[1] that tie broker earnings to customer interest rates, could cause significant consumer harm.[2] Following a long consultation process, the FCA made the decision to ban discretionary commission arrangements in motor finance and introduce stricter consumer disclosure requirements in all consumer credit markets. In summary, since 28 January 2021:
i. Lenders or credit brokers in the motor finance market have been prohibited from:
a. entering into or having rights or obligations under a discretionary commission arrangement; or
b. seeking to exercise, enforce or rely on rights or obligations under a discretionary commission arrangement, including receiving or tendering the payment of a commission, fee or other financial consideration.[3]
ii. Credit brokers have also been required to prominently disclose to a customer, in good time, the existence and nature of commission arrangements if they could influence the broker’s impartiality or the customer’s decision, or where the commission varies depending on specific factors in the arrangement. The broker must also explain how the commission arrangement could affect the price payable by the customer.[4]
While the changes introduced by the FCA removed the incentive for credit brokers to fix the interest rate as high as possible in order to increase commission earnings, claims continued to be filed in the County Courts by, and the Financial Ombudsman Service continued to receive numerous complaints from, customers who were claiming compensation for undisclosed discretionary commission arrangements prior to the ban.[5]
This prompted the FCA to announce in January 2024 that it was reviewing historic motor finance commission arrangements across several firms, with a view to identifying possible avenues for redress should widespread misconduct be found.[6] As part of this investigation, the FCA extended the time motor finance firms had to respond to customer complaints regarding discretionary commission arrangements, first to 25 September 2024[7] and subsequently to 4 December 2025.[8] The FCA was expected to release its findings by September 2024, but this has since been delayed to May 2025.[9]
The decision in Johnson v FirstRand Bank
Background
In Johnson v FirstRand Bank, the Court of Appeal (the “Court”) addressed three appeals relating to motor finance commissions concurrently (“Hopcraft”, “Wrench” and “Johnson”), and sought to provide an authoritative ruling on the legal issues raised in these three cases, in light of the lack of binding authority and the significant number of similar claims currently pending before the courts.[10]
In each appeal, the claimant had entered into hire-purchase agreements with the lenders in order to finance the purchase of their vehicles. The agreements were arranged by their dealers (acting as credit brokers), and a commission had been paid by the lender to the dealer/broker for introducing the business.[11] Each claimant had brought a claim in the County Court against their respective lender, seeking the return of the commission paid to the dealer.[12]
The facts of each case can be summarised as follows:
i. Hopcraft: The payment of the commission by the lender, Close Brothers Limited (“Close”) was not disclosed to the claimant, and therefore this was a “fully secret” or “no disclosure” case. There was no information provided to the claimant on the type of commission arrangement or how the commission was calculated.[13]
ii. Wrench: The claimant entered into two hire purchase agreements with the lender, FirstRand Bank Limited (“FirstRand”), which were arranged through different dealers. In both instances, the claimant was provided with FirstRand’s standard terms and conditions, and it was assumed for the purposes of the appeal that the hire purchase agreements incorporated FirstRand’s standard terms. The standard terms included a provision acknowledging that a commission may be payable by the lender to the broker.[14] One commission was based on the discretionary commission model, and the other was based on a fixed percentage of the amount borrowed by the claimant.[15] The claimant was neither directed to read any statement relating to commission, nor was he told about the commission prior to entering into the agreements.[16]
iii. Johnson: The claimant entered into a hire purchase agreement and a personal loan with FirstRand. He was provided with an enormous amount of documentation and was unaware that (a) the dealer would be paid a commission; and (b) FirstRand had right of first refusal to offer finance to the dealer’s customers. However, the documentation did include a “Suitability Document” which stated that the dealer “may receive a commission from the product provider”. The commission was calculated based on a fixed percentage of the amount borrowed (although there was a discretionary element that was not triggered).[17]
While it was clear that Hopcraft concerned a “secret commission”, the position was less clear in Wrench because of the reference to the possibility of a payment of commission in FirstRand’s standard terms. The judges in the lower courts disagreed as to whether Wrench should be characterised as a “partial disclosure” case, as there had been sufficient disclosure to negate secrecy, or a “fully secret” case.[18] Finally, in Johnson, the claimant conceded that it was a case of “partial disclosure”.[19]
The Court therefore had to decide how “fully secret” and “partial disclosure” cases should be addressed, and whether the lender in each of these cases was liable to the claimant, such that the lender had to account for the commission to the claimant.
The law on “fully secret” and “partially disclosed” commissions
The Court started by examining how previous cases involving a broker, a lender and a borrower in which the lender had paid the broker a commission were previously dealt with. The law in this area consists of two limbs – instances where the commission was “fully secret”, and instances where the commission was “partially disclosed”.[20]
For “fully secret” cases, the Court found that the broker must first owe the borrower a disinterested duty to provide information, advice or recommendations on an impartial or disinterested basis.[21] It is unnecessary to show that the relationship between the broker and the borrower was a fiduciary one (though it could be). In this scenario, if the lender had paid a secret commission to the broker, the lender would be liable to the borrower as a primary wrongdoer. The borrower would therefore be entitled to bring a claim for the disgorging of the secret commission (among other remedies).[22]
On the other hand, in “partial disclosure” cases (i.e., cases where the commission was not secret as there was sufficient disclosure to negate secrecy) the broker had to owe the borrower a fiduciary duty such that the borrower’s informed consent to the conflict of interest caused by the commission was required.[23] Absent the borrower’s fully informed consent, the lender would be held liable as an accessory to the broker’s breach of fiduciary duty (if it had the requisite knowledge).[24] Equitable relief would be available to the borrower, such as a rescission of contract or the repayment of the commission.[25]
Finally, the Court was keen to stress that the scope and type of duties owed by the broker to the borrower will always depend on the circumstances of their relationship and the overall context. For example, where the borrower is highly sophisticated and wealthy, the scope of the fiduciary duty owed by the broker may not extend to a requirement to disclose the amounts of the commission.[26]
The Court’s decision
The Court first held that the scenario in all three appeals – that being, where the car dealer is concurrently acting as a seller and a credit broker, and an unsophisticated customer relies on the dealer to obtain an offer of finance from a panel of lenders to which only the broker has access – gave rise to the broker owing the customer both a disinterested duty and a fiduciary duty.[27]
A disinterested duty had arisen for the following reasons:
i. The role of credit brokers is to provide information to the customer about the available finance. The very nature of this duty gave rise to a “disinterested duty”, unless the broker clearly informed the customer that they were promoting their own self-interest when finding an offer of finance at the customer’s expense, and could not be impartial.[28]
ii. Where a broker is acting purely as an intermediary between the customer and the lender and has no other means of remuneration from the customer, a customer might reasonably assume (or be expected to assume) that the lender would renumerate the broker. However, in all three appeals, the claimant had viewed the procuring of finance as “an adjunct to the sale transaction”, and would not expect the lender to pay the broker a commission, unless told otherwise.[29]
In tandem with the disinterested duty, the brokers also owed the customer an ad hoc fiduciary duty:
i. The key question here is “whether the broker was acting on behalf of the customer in a capacity which involved an obligation of loyalty and the repose of trust and confidence in him in relation to the specific duties he was tasked to perform”.[30]
ii. The Court found that in all three cases, the nature of the relationship between the broker and the customer, and the tasks entrusted to the broker meant that a fiduciary duty had to have arisen. The customers needed the finance to purchase the vehicles, making them more vulnerable than someone who was able to pay for the vehicle in cash. Indeed, the customers had relied on their dealers to procure an offer of finance, which was, at a minimum, competitive in nature.[31]
iii. Moreover, there was also an obligation of loyalty inherent in the disinterested duty.[32] The brokers “were not carrying out a purely ministerial function” and the customers, who were relatively unsophisticated, clearly placed trust and confidence in the dealers to secure an affordable and competitive agreement.[33]
Having established the duties owed by the brokers to the claimants, the Court proceeded to determine whether each appeal was a “fully secret” or “partial disclosure” case, and whether the relevant duties (i.e., the disinterested duty for “fully secret” cases, and the fiduciary duty for “partial disclosure” cases) were breached, giving rise to either primary liability or accessory liability on the part of the lenders.
Hopcraft was relativity straightforward: it was common ground between the parties that the commission was fully secret, as there was no mention of any commission in any documents or pre-contractual discussions.[34] The broker had therefore breached the disinterested duty owed to the claimant, and as a result of this, the lender was liable to the claimant as a primary wrongdoer.[35] The appeal was allowed.
Wrench was more complicated on the facts due to the reference to the possibility of a commission payment in FirstRand’s standard terms. The question was whether this constituted sufficient disclosure to negate secrecy and relieving the lender of primary liability.[36] The Court emphasised that this depended on the facts of each case.[37] On one hand, a commission cannot be said to be fully secret if the possibility of a commission payment is clearly contained in a document that a customer was directed to read carefully and sign, and the document was prepared for this exact purpose.[38] On the other hand, simply putting an unsophisticated customer on inquiry was insufficient to negate secrecy.
On the facts, the Court found that the reference to the possibility of a commission payment was “hidden in plain sight” – it was inconspicuously tucked away in a corner, which meant that the prospect of a customer reading it was negligible. Not enough was done to bring the salient facts to the customer’s attention in a way which made their significance clear.[39] There was no disclosure in any meaningful sense, and Wrench was held to be a “fully secret” commission case. Like the lender in Hopcraft, FirstRand was liable to the claimant as a primary wrongdoer.
Finally, as mentioned above, Johnson was conceded to be a “partial disclosure” case by claimant’s counsel. Interestingly, while the Court appreciated why such a concession was made due to the existence of the Suitability Document, it held obiter that it would not have necessarily agreed that it was a partial disclosure case, had the issue been pursued.[40] As a “partial disclosure” case, the fully informed consent of the claimant had to be obtained in order to absolve the lender of accessory liability. In other words, the claimant had to be told “all the material facts that might have affected his decision to enter into the hire-purchase agreement with FirstRand”.[41]
In the Court’s view, had the claimant read the Suitability Document, he would not have been informed that a commission would be paid, and that FirstRand had first refusal to make an offer of finance. He was also not told the amount of commission, how it was calculated or that a substantial proportion of the price he was paying for the vehicle was used to finance the commission payments. It was clear on these facts that there was no fully informed consent.[42]
The Court further addressed the lender’s required state of knowledge in order to establish accessory liability in equity for assisting the breach of the broker’s fiduciary duty:
i. As a first principle, the lender must act dishonestly (Twinsectra Ltd v Yardley and others [2002] UKHL 12).[43]
ii. Dishonesty is found where the lender knew of (a) the fiduciary relationship between the broker and the customer, and (b) that it had paid the broker a commission in circumstances where the customer’s fully informed consent had not been obtained, which was a breach of an ad hoc fiduciary duty.[44]
iii. Simply requiring the broker to disclose the existence of the commission, or that a commission may be payable, does not excuse dishonesty, and the lender would be turning a blind eye to the broker’s breach of fiduciary duty to the customer.[45]
Applying the above principles to the facts in Johnson, the Court determined that:
i. The terms between FirstRand and the credit broker only required that the broker disclose the possibility of a commission payment to the customer. It therefore did not, in any event, require full disclosure of all material facts. In turn, this actively encouraged the broker not to make full disclosure[46] and was, on its own, sufficient to meet the threshold of dishonesty.
ii. FirstRand (and lenders in similar cases) clearly knew about the fiduciary relationship between the customer and the broker. Any lender who included a provision in their agreement with the broker requiring the disclosure of the existence of commission must have done so because it knew of the potential conflict of interest.[47]
iii. FirstRand was paying the commission and knew about the terms of the commission model. The first refusal obligation it imposed on the broker also meant that it knew the broker had to approach FirstRand, even if FirstRand’s offer was not the most suitable. It was plain that FirstRand knew that a payment of commission in these circumstances would put the broker in breach of its fiduciary duty owed to the customer, unless fully informed consent was obtained.[48]
iv. FirstRand knew that no fully informed consent had been obtained from the customer. This arose automatically from the fact that there was only partial disclosure (rather than full).[49] In the alternative, FirstRand knew that fully informed consent had not been obtained, because it took no steps to ascertain whether the customer had given consent, it did not require any confirmation of consent, and it did not take it upon itself to obtain the customer’s consent.[50]
Based on the above findings, the Court concluded that FirstRand was liable as an accessory to the breach of the broker’s fiduciary duty, and had to compensate the claimant in the amount of the commission payment plus interest from the date on which it was paid.
Separately, the Court also held that there was an unfair relationship between the claimant and FirstRand for the purposes of sections 140A-C of the Consumer Credit Act 1974: the commission payment was significant, the true nature of FirstRand and the broker’s relationship was not disclosed by FirstRand, and was, in fact, actively concealed by the broker (as the lender’s agent).[51]
II. Consequences of the decision and next steps
The Court’s decision has, understandably, given rise to significant concern in the motor finance industry. There are fears that the industry could be headed for a PPI-scale disaster, and the share prices of Close and other firms such as Lloyds Banking Group fell significantly when the decision was rendered.[52] The rating agency Moody’s has forecasted a compensation bill of up to £30 bn, and a number of claims companies and specialist law firms have already began preparing for mass claims to be brought.[53]
In effect, any historic commission payment (not only discretionary commission arrangements) may now be challenged by customers similarly situated to the claimants in Hopcraft, Wrench and Johnson. In this regard:
i. It is likely to be difficult for a defendant to negate an allegation of secrecy so as to classify the case as one of “partial disclosure”, as opposed to “fully secret”. This is evident from the Court’s findings in Wrench, where a reference to the possibility of a commission payment was insufficient to constitute partial disclosure as it was found buried in the small print. Even in Johnson, where the claimant had to sign a specific document noting the possibility of a commission arrangement, the Court cast doubt on whether this was enough to demonstrate partial disclosure.
ii. In “fully secret” cases, a lender will be liable as a primary wrongdoer, as long as the broker owes the customer a disinterested duty to provide information, advice or recommendations on an impartial basis. It appears that brokers will owe such a duty in most cases, especially where the customer is unsophisticated. From this perspective, lenders may be exposed to a significant number of “fully secret” claims.
iii. In “partial disclosure” cases, the Court has held that a lender would have accessory liability, if the lender knew that a customer’s fully informed consent to the commission had not been obtained, due to a breach of the broker’s fiduciary duty to the customer. It appears that (a) in most cases, a fiduciary duty will certainly arise in tandem with the disinterested duty, and (b) the lender is assumed to have the requisite knowledge if the disclosure was partial. Once again, therefore, it appears that lenders may find themselves subject to a high number of “partial disclosure” claims.
It is also interesting that the legal position adopted by the Court in Johnson v FirstRand Bank appears more stringent than the FCA’s current rules – if the broker’s disclosure is deemed to only be partial, it seems that nothing short of the lender seeking the fully informed consent from the customer would absolve it of liability. The FCA has reacted swiftly by acknowledging the decision, and noting that it is in “close contact with the firms involved, the wider sector and the Government to monitor the market, analyse the impact on the industry and consumers and identify what action is required”.[54] On 13 November 2024, the FCA announced that it would consult on extending the time firms have to respond to consumer complaints about motor finance where a non-discretionary commission was involved (and not just discretionary commission arrangements).[55]
Following the consultation, on 19 December 2024, the FCA released a Policy Statement, which (a) gives firms until after 4 December 2025 to provide a final response to non-discretionary commission arrangements (in line with the extension for discretionary commission arrangements), and (b) provides consumers with more time to refer their complaints to the Financial Ombudsman Service, once they have received a final response.[56]
The defendants, Close and FirstRand have both made good on their promise to appeal the judgment at the Supreme Court.[57] On 11 December 2024, the Supreme Court granted the defendants’ application for permission to appeal, and in a sign of the importance of the issues raised by the case, it is expected to be heard before the end of March 2025 – an exceptionally short period of time within which to hear an appeal by the Supreme Court’s standards.[58]
In another sign of the importance of this appeal, it has also been reported that the UK Treasury has sought permission from the Supreme Court to intervene in the case, due to the fear that banks and consumer finance providers could be exposed to multi-billion pound compensation claims should the Supreme Court dismiss the appeal.[59] This may, in turn, make it difficult for consumers to obtain finance for vehicle purchases, as financers reconsider their presence in the UK market amid concerns that “regulation in the UK is uncertain”.[60]
III. Implications on the consumer finance industry in the UK
The overall scenario in Johnson v FirstRand Bank, in which the provision of finance to a borrower by a lender is intermediated by a broker, is commonplace in consumer finance. Thus, as the Court acknowledged, the services provided by the brokers in Hopcraft, Wrench and Johnson were “materially the same as that provided by other credit brokers of consumer finance”.[61]
It follows that if upheld by the Supreme Court, the judgment may have significant wider implications for the consumer finance industry. Any supplier of goods or services, who also acts as a credit broker and arranges for the customer to obtain finance for goods or services, may potentially expose the lender to liability as long as the lender has paid the broker a commission. The potential for group litigation in areas beyond the motor finance industry, such as instalment finance or home appliance insurance, is also clear. Interested parties would do well to plan for the possibility of such claims arising now.
***
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Email: jhughesjennett@quinnemanuel.com
Phone: +44 20 7653-2220
Yasseen Gailani
Email: yasseengailani@quinnemanuel.com
Phone: +44 20 7653-2021
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Email: leokitchen@quinnemanuel.com
Phone: +44 20 7653-2088
Sze Hian Ng
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Phone: +44 20 7653-2041
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Endnotes:
[1] An arrangement where a commission, fee or other financial consideration is payable directly or indirectly to the credit broker in connection with a regulated credit agreement, where this is wholly or partly affected by the interest rate (or other item within the total charge for credit) set or negotiated by the broker (see FCA Glossary of Terms).
[2] FCA, CP19/28: Motor finance discretionary commission models and consumer credit commission disclosure, para. 1.1.
[3] FCA, CONC 4.5.5 – 4.5.6, Consumer Credit Sourcebook <CONC 4.5 Commissions - FCA Handbook>.
[4] FCA, CONC 4.5.3R – 4.5.3B, Consumer Credit Sourcebook <CONC 4.5 Commissions - FCA Handbook>.
[5] FCA, FCA to undertake work in the motor finance market | FCA.
[6] FCA, FCA to undertake work in the motor finance market | FCA.
[7] FCA, PS24/1: Temporary changes to handling rules for motor finance complaints | FCA.
[8] FCA, PS24/11: Extending the temporary changes to handling rules for motor finance complaints.
[9] FCA, Update on motor finance work | FCA.
[10] Johnson v FirstRand Bank, [16] – [17].
[11] Johnson v FirstRand Bank, [7].
[12] Johnson v FirstRand Bank, [9].
[13] Johnson v FirstRand Bank, [23] – [30].
[14] Johnson v FirstRand Bank, [36] – [36].
[15] Johnson v FirstRand Bank, [38], [40].
[16] Johnson v FirstRand Bank, [39].
[17] Johnson v FirstRand Bank, [41] – [51].
[18] Johnson v FirstRand Bank, [108].
[19] Johnson v FirstRand Bank, [124].
[20] Johnson v FirstRand Bank, [76].
[21] Johnson v FirstRand Bank, [9]; Wood v Commercial First Business Ltd [2021] EWCA Civ 471.
[22] Johnson v FirstRand Bank, [77]; Hurstanger Ltd v Wilson [2007] EWCA Civ 299.
[23] Johnson v FirstRand Bank, [77], [80].
[24] Johnson v FirstRand Bank, [18], [133], [137].
[25] Johnson v FirstRand Bank, [61], [72].
[26] Johnson v FirstRand Bank, [67], [92].
[27] Johnson v FirstRand Bank, [83] – [107].
[28] Johnson v FirstRand Bank, [87].
[29] Johnson v FirstRand Bank, [84].
[30] Johnson v FirstRand Bank, [90].
[31] Johnson v FirstRand Bank, [91] – [93].
[32] Johnson v FirstRand Bank, [91] – [93].
[33] Johnson v FirstRand Bank, [95].
[34] Johnson v FirstRand Bank, [88].
[35] Johnson v FirstRand Bank, [88], [173(4)].
[36] Johnson v FirstRand Bank, [108].
[37] Johnson v FirstRand Bank, [111].
[38] Johnson v FirstRand Bank, [110].
[39] Johnson v FirstRand Bank, [118] – [119].
[40] Johnson v FirstRand Bank, [112].
[41] Johnson v FirstRand Bank, [120].
[42] Johnson v FirstRand Bank, [121].
[43] Johnson v FirstRand Bank, [127].
[44] Johnson v FirstRand Bank, [125] – [126].
[45] Johnson v FirstRand Bank, [128].
[46] Johnson v FirstRand Bank, [45], [129].
[47] Johnson v FirstRand Bank, [133].
[48] Johnson v FirstRand Bank, [134] – [135].
[49] Johnson v FirstRand Bank, [137].
[50] Johnson v FirstRand Bank, [138] – [141].
[51] Johnson v FirstRand Bank, [170].
[52] Financial Times, Court of Appeal side with UK consumers over ‘secret’ car loan commissions.
[53] The Guardian, Claims management companies circle after UK court ruling on mis-sold car finance | Financial sector | The Guardian.
[54] FCA, FCA statement on Court of Appeal judgment in Hopcraft, Johnson and Wrench | FCA.
[55] FCA, FCA to consult on extending the time motor finance firms have to handle commission complaints | FCA.
[56] FCA, PS24/18: Further temporary changes to handling rules for motor finance complaints | FCA.
[57] CityAM, Motor finance industry in crisis mode after landmark court ruling.
[58] The Lawyer, Supreme Court grants permission to appeal in “PPI 2.0” motor finance case - The Lawyer | Legal insight, benchmarking data and jobs; Supreme Court, Announcement from UK Supreme Court - UK Supreme Court.
[59] Financial Times, Rachel Reeves intervenes in UK car finance mis-selling case to protect lenders.
[60] The Guardian, Reeves bids to intervene in car finance case that could cut lenders’ £30bn bill | Financial sector | The Guardian.
[61] Johnson v FirstRand Bank, [93].