Motor Finance Commissions Under Scrutiny

The UK Supreme Court is reviewing commission payments in motor finance, focusing on lenders' liability where commissions are undisclosed or partly disclosed. While Irish rules already ban DCAs, the ruling may have wider impact on commission structures in both jurisdictions. Our Dispute Resolution team considers the ruling and its potential implications for the industry.

In a previous article, we highlighted the ever-evolving landscape of obligations owed by banks to consumers. More recently, there have been significant developments in the UK regarding commissions paid in motor finance. These developments could have a significant impact on similar arrangements in Ireland. The UK Supreme Court has recently concluded its hearing of an appeal concerning the use of discretionary commission arrangements (DCAs) in motor financing.

The regulatory framework in Ireland differs in key respects from that in the UK. Nevertheless, the outcome of the UK Supreme Court’s decision could have a seismic effect on commission structures across the industry. If the English Court of Appeal’s ruling is upheld, the judgment may extend beyond motor finance and potentially affect commission structures in other areas of consumer finance as well.

What are DCAs?

DCAs are financing arrangements where a lender pays a credit intermediary a commission that can change, depending on the interest rate the consumer is charged. In addition, under the arrangements, the intermediary is given latitude to set the interest rate paid by the consumer. In short, therefore, the higher the interest rate agreed with the consumer, the higher the commission paid to the intermediary by the lender.

DCAs in Ireland

The Central Bank of Ireland (CBI) issued a “Dear CEO” letter on 12 June 2024. In it, the CBI announced that DCAs would be prohibited in Ireland from 31 July 2024 and that it intended to make specific provision in this respect in the revised Consumer Protection Code (published in March 2025). The CBI concluded that DCAs are inconsistent with Provision 3.25A of its Consumer Protection Code, which prohibits regulated firms from engaging in commission arrangements that impair their ability to act in the best interests of customers. The CBI highlighted concerns about the potential for conflicts of interest where commission levels are linked to consumer borrowing costs.

DCAs in the UK

The UK Financial Conduct Authority (FCA) acted earlier, banning DCAs in 2021. This regulatory change led to an uptick in consumer complaints to the FCA, as many consumers were previously unaware of the existence or structure of these commission arrangements. The Financial Ombudsman Service (FOS) subsequently upheld these complaints. It found that the relationship between the lender and the consumer was unfair under UK regulation due to the insufficient disclosure of the commission arrangement. This finding was subsequently upheld by the High Court of England and Wales in proceedings issued by Clydesdale Financial Services Limited, trading as Barclays Partner Finance.[1] An appeal is awaited. However, the judge at first instance noted that the appeal is unlikely to succeed.

Alongside the rise in regulatory complaints, a flurry of proceedings have been initiated across the UK by customers seeking recovery of commissions paid to intermediaries in connection with their lending arrangements. Three cases have emerged as test cases. In each case, the claimant financed the purchase of a motor vehicle through a dealership. The credit agreements in each case disclosed the nature of the commission structure to varying degrees, ranging from no disclosure to partial disclosure.

The Court of Appeal of England and Wales found in favour of the three consumers. In so doing, it held that:

• The determination of whether a consumer has been adequately informed about a commission arrangement is a factual question. It depends on how clearly the arrangement is disclosed. Hiding this information within the fine print of a credit agreement will not be sufficient.
• Motor dealers sometimes act as credit brokers on behalf of their customers. When they do, according to the Court of Appeal, they owe at least an ad-hoc fiduciary duty to the customer. This duty arises because they have a ‘disinterested duty’ to act in the customer’s best interests, without being influenced by their own financial interests.
• The commission payment must be “secret” in order for the customer to establish a lender’s primary liability. In other words, if the customer knows about the commission, primary liability for the lender may not arise, and the customer’s recourse may be against the intermediary only.
• Where there is partial disclosure of the commission, the lender may be held liable in equity as an accessory to the broker’s breach of fiduciary duty. The lender must be found to have knowledge of the fiduciary relationship between broker and customer and to have failed to satisfy itself that the customer has given fully informed consent to the commission payment.

In its judgment, the Court of Appeal of England and Wales did something unusual. Clearly being aware of the potential for its ruling to lead to significant consequences for lenders, it asked the UK Supreme Court to give guidance on when a lender can be held liable for the payment of a commission. That decision from the Supreme Court is still pending and is expected in July 2025.

Should the UK Supreme Court uphold, even in part, the judgment of the Court of Appeal, it could have a significant impact on commission arrangements, extending beyond motor finance. The judgment is not confined solely to DCAs, but could apply to commission arrangements generally. It remains to be seen what kinds of commission arrangements, other than DCAs, will be potentially impacted by the Supreme Court’s ruling.

Ireland has little case law relating to key aspects of the Supreme Court’s judgement, such as the circumstances, if any, in which a “disinterested duty” will be imposed, or a lender be held primarily liable for an intermediary’s breach of fiduciary duty. This means that there will be significant scope for argument in Ireland as to the relevance and applicability of the ruling as a matter of Irish law. That said, English precedents generally have some level of persuasive effect before Irish courts, so the judgment is likely to have some impact here.

The FCA is already considering the implementation of a redress scheme for UK motor finance customers. An announcement regarding this scheme is expected six weeks after the UK Supreme Court's decision.

Conclusion

There is a general shift both through the courts and the regulatory environment towards greater consumer protection. While the regulatory position in Ireland regarding finance arrangements is different to the UK, and decisions of the English courts are not binding on the Irish courts, the impending decision of the UK Supreme Court will nevertheless have implications for the industry in Ireland and is keenly awaited.

It is advisable for lenders and intermediaries to seek expert legal advice to assess the potential impact of the UK Supreme Court's decision on their business, as well as any disputes on related insurance coverages, such as professional indemnity insurance policies, that may arise.

For more information and expert advice, please get in touch with a member of our Dispute Resolution or Financial Regulation teams.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] Clydesdale -v- Financial Ombudsman Service and others [2024] EWHC 3237 (Admin).