As the Supreme Court deliberates on a case that could reshape the motor finance sector, the future of car dealers and their role in finance transactions is at a crossroads.
At the heart of this appeal is whether car dealers have a fiduciary duty to consumers regarding commissions they receive from finance deals—a question that could have profound implications for the entire automotive retail sector.
The National Franchised Dealers Association (NFDA), which represents over 4,000 franchised dealers in the UK, has been vocal in defending the current model, arguing that dealers’ practices are transparent and not worthy of the accusations levelled against them.
The case began after the Court of Appeal ruled that car brokers might owe consumers a fiduciary duty and must secure fully informed consent before receiving commission payments from lenders. This ruling has sparked a challenge from lenders like Close Brothers and FirstRand, which argue that it could result in costly and far-reaching implications for the entire sector.
The NFDA has vigorously rejected claims of misconduct. It argues that car dealers operate transparently, with consumers understanding that they are engaging with a commercial business.
Dealerships sell cars and related products with a clear profit motive in mind—whether that involves the sale of vehicles, accessories, or financing options. The notion that dealers have engaged in “bribery” or unethical conduct, according to the NFDA, misrepresents the long-established practices of the industry.
Far from being passive brokers of car finance, dealerships are commercial entities in their own right, operating with full disclosure that their profit margins include commissions from finance providers.
The Financial Conduct Authority (FCA), which has intervened in the case, has raised concerns about the broad interpretation of fiduciary duties as set out in the Court of Appeal’s ruling.
The FCA’s position, articulated in its court filings, is that applying fiduciary responsibilities to car dealers and brokers across the board could impose burdensome regulatory obligations on businesses that are not financial advisers.
The financial watchdog has stressed the need for clear transparency, but it also cautioned against a one-size-fits-all approach that could fundamentally alter how car dealers operate.
This is a pivotal moment for the motor finance industry, valued at approximately £40 billion annually. A ruling against the industry could trigger major shifts in the way car finance deals are structured, potentially forcing brokers and dealers to disclose more about commissions upfront and seek customer consent in ways that could complicate the sales process. This could lead to a flood of consumer redress claims, with compensation payments running into billions of pounds.
