Motor finance scandal: How undisclosed commissions rewrote the rules on unfair relationships

Trainee solicitor Billy Hart explores the government’s response to the overcharging of car finance customers

When the Financial Conduct Authority (FCA) published its long-awaited motor finance redress scheme on 30 March 2026, the headlines did what headlines often do. They went straight for the numbers: £9.1 billion. Twelve million eligible agreements. A period stretching back nearly two decades. The scheme is the FCA’s response to widespread evidence that car finance customers were charged higher interest rates without being told that their dealer earned more commission as a result; a practice that was, for much of the period in question, entirely routine. It is an eye-catching bill, and for the lenders sitting with their calculators, a deeply unwelcome one.

But the more interesting story, certainly for anyone interested in the law rather than just the ledger, is what the scheme reveals about two legal concepts that have sat at the edge of banking law for years, waiting for a case big enough to bring them into focus: the unfair relationship doctrine under the Consumer Credit Act 1974, and the deceptively simple question of who, legally, the broker was actually working for.

A statute ahead of its time

Section 140A of the Consumer Credit Act 1974 has long been regarded as an outlier. Introduced by the Consumer Credit Act 2006, it replaced the former extortionate credit bargain provisions with a power for courts to reopen a credit agreement where the relationship between creditor and debtor is deemed “unfair”. That is — not unlawful, not fraudulent, but unfair; a factor assessed across the full circumstances of the relationship.

Crucially, that unfairness can arise not just from the terms of the agreement itself but from “anything done (or not done)” by or on behalf of the creditor, a phrase that is doing considerable work and through which undisclosed commission arrangements have walked, at the motor finance industry’s considerable expense (Section 140A(3)).

The Supreme Court’s decision in Hopcraft; Johnson; Wrench [2025] UKSC 33, handed down in August 2025, was the moment this doctrine moved to the mainstream. The court confirmed that the nature and amount of a commission arrangement can be highly material to the unfairness assessment, and that the failure to disclose such arrangements to borrowers is capable of tipping the balance. The FCA has built its redress framework on this foundation.

The legal significance here lies with what the Supreme Court did not do. It did not narrow the test, and it did not offer lenders an unambiguous rule about the type of disclosure that would have been sufficient. The section 140A analysis remains fact sensitive, meaning the FCA’s redress scheme is essentially an attempt to convert judicial discretion into an administrative formula at scale. Whether that conversion holds under challenge will be one of the more consequential legal questions in the not-too-distant future.

Agent of whom, exactly?

In the typical motor finance transaction, the car dealer introduces the customer to the lender, completes the credit application paperwork, and submits it for approval. The lender sets the parameters within which the dealer operates, and pays the dealer’s commission. Described in those terms, it sounds functionally like agency for the lender. Yet, in most cases, the contractual documentation described the dealer as an independent credit broker acting on its own regulatory license.

The courts have seemingly become sceptical of that characterisation. Where a lender sets the rate range, funds the commission, and has ongoing oversight of the broker’s conduct, the argument that the broker is a genuinely independent intermediary acting in the borrower’s corner is difficult to sustain. A broker who simultaneously owes duties of loyalty to a borrower whilst earning undisclosed, variable commission from the lender is in an acute conflict of interest. The law of fiduciary duty does not treat undisclosed conflicts kindly, and it never has.

The FCA’s scheme sidesteps the need for a definitive answer by focusing on the disclosure failure itself. But for the borrowers who choose to pursue civil litigation (a group the FCA has deliberately carved out of the scheme by excluding litigants entirely), the agency question will need to be answered directly and the answer will determine not just whether they win, but how much they may recover.

An old statute doing new work

There is a broader point worth making about what the news of undisclosed commission represents in terms of the law’s reach. The Consumer Credit Act’s drafters arguably could not have anticipated discretionary commission arrangements in car dealerships when they wrote section 140A, and yet they wrote a provision broad enough to reach conduct they could not foresee, and it has proved equal to the task.

That is both the strength of the provision and its challenge. Breadth creates uncertainty, and uncertainty proves expensive. The motor finance industry’s position today, facing a near £10 billion redress bill for practices that were, at the time, largely unremarked upon, is partly the product of a legal standard that nobody tested until it was too late.

Beyond the motor finance sector itself, the doctrine is now live and tested which means any intermediated lending market where commission arrangements are not clearly disclosed to borrowers should, if they have not already, be taking a hard look at their potential exposure.

The current situation is less a story about what went wrong in one sector than a stress test of how the law handles a market that grew faster than the rules designed to govern it. The rules, as it turns out, were broader than anyone had given them credit for.

Billy Hart is a trainee solicitor in the trusts and estates team at Ashfords LLP.