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.
Go deeper with GlobalData
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.
However, the NFDA argues that the focus should not be on whether car dealers have acted improperly, but on ensuring clear, informed decision-making for consumers. The heart of the issue lies in transparency, not misconduct. Customers should know what they are buying and understand the costs involved in financing, but the idea that dealers should operate as fiduciaries—obliged to act in the best interests of consumers at all times—may be an overextension of the regulatory framework, particularly in an industry driven by sales and profit motives.
The broader issue here is one of regulatory clarity. While it is undeniable that the consumer finance market has its pitfalls, imposing fiduciary duties on car dealers could be an overly simplistic response. Rather than adopting an adversarial stance that frames the issue as one of “misconduct,” regulators should focus on ensuring that all parties—dealers, lenders, and consumers—understand the nature of the transactions they are engaged in.
The FCA’s intervention highlights this delicate balance. Consumer protection must remain a priority, but a regulatory approach that disrupts the entire industry could lead to unintended consequences. The Supreme Court’s decision could set a precedent that goes far beyond the automotive retail sector, with broader implications for any business that operates in the consumer finance space.
At this stage, what is clear is that the motor finance industry needs clear regulatory guidelines that promote transparency without stifling the operations of businesses that are, at their core, commercial ventures. The Supreme Court has a difficult task ahead—one that will determine whether the motor finance industry is forced to overhaul long-standing practices or whether it will continue under a clearer, more proportionate framework. Either way, the outcome will shape the future of car dealerships and their relationship with consumers for years to come.
