Car Finance: Undisclosed Commissions and Unfair Relationships (Hopcraft v Close Brothers)

The UK Supreme Court delivered a major judgment that clarified the law on undisclosed commissions in motor finance, which has significant implications for the finance industry and millions of consumers.

Issue: Does a car dealer who receives a commission from a lender for arranging finance in a tripartite transaction between customer, dealer, and lender in which a car is bought on credit owe a duty to the buyer of the car such as to enable that buyer (absent the requisite level of disclosure) to bring a claim against the lender for bribery or dishonest assistance, or under the Consumer Credit Act 1974 (the “CCA”)?

Fiduciary Duty: The court ruled that, in a typical three-cornered motor finance transaction (dealer, lender, and customer), car dealers do not owe a fiduciary duty of loyalty to their customers. This overturned the Court of Appeal's finding that the commission payments constituted a form of "half-secret commission" and were a breach of fiduciary duty or a bribe.

Tort of Bribery: The court clarified that the common law tort of bribery requires a fiduciary duty for an agent to be liable. Since the dealer was not a fiduciary, the claims of bribery failed.

Consumer Credit Act (CCA): Despite the claims in contract and tort failing, the Supreme Court ruled that the payment of undisclosed commissions could still lead to an "unfair relationship" under the CCA 1974. This allows consumers to seek compensation from the lender on a case-by-case, "highly fact-sensitive" basis, keeping the door open for millions of compensation claims.

More info & full text of judgement here

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