Landmark court ruling disrupts the car finance industry

The car finance sector is reeling from a Court of Appeal ruling that motor dealers offering loans to customers must disclose commissions to gain fully informed consent. The decision has profound implications across the industry, affecting lenders, brokers and dealerships alike.

What the court ruled

The case involved three customers who said they were unaware of the commissions lenders paid to car dealers. The Court of Appeal sided with the consumers, holding that such commissions are unlawful without explicit consent - a standard for transparency considerably higher than existing FCA requirements.

Close Brothers, one of the lenders involved, paused new motor finance lending and said it would appeal to the Supreme Court. The firm acknowledged that while the financial impact of the specific case was manageable, the ruling could create significant liabilities if it set a precedent.

Lloyds Banking Group, which owns Black Horse, was also affected by the judgment.

What it means for lenders

Lenders need to fully disclose any commissions paid to dealerships and obtain customer consent before finalising finance agreements. That increases transparency and requires updating processes and documentation to match. There is a risk of significant compensation claims and regulatory scrutiny, which carries consequences for financial stability and operations.

What it means for car dealers

Dealers must disclose all commissions received from lenders before finalising any agreement, which requires reviewing and likely overhauling current processes and documentation.

Operational disruption. Honda Finance Europe temporarily stopped payouts on finance agreements, leaving customers unable to collect their vehicles - an illustration of how quickly the practical consequences reached the forecourt.

Financial liability. There is potential exposure to compensation claims where past deals did not include full disclosure.

Regulatory scrutiny. Expect increased oversight. The FCA is investigating discretionary commission arrangements on car loans issued between 2007 and 2021, and was expected to take the ruling into account in that work.

Long-term implications for compliance

The motor finance industry should expect sustained regulatory scrutiny and potential financial liabilities. Some firms have already set aside substantial sums against possible claims.

For dealerships, the ruling underscores the need for robust compliance frameworks. All finance-related transactions need to be transparent, with customers fully informed about any commission involved. That avoids legal exposure, and it builds the kind of trust that survives an industry-wide redress exercise.

What this means for you

The Court of Appeal’s decision marked a significant shift, and dealerships and lenders that adapted quickly mitigated both financial and operational risk. Clear and honest communication with customers is what sustains a business through a period like this.

This article is a record of the position as it stood when it was written. The Supreme Court subsequently heard the appeal and ruled on 1 August 2025, upholding one element of the cases and overturning others.