The recent UK court ruling on car finance commission structures is set to reshape how dealerships, brokers, and lenders navigate the car finance landscape. This landmark case challenges existing practices around commission disclosure and fiduciary duties, marking a seismic shift in compliance expectations. For senior stakeholders at car dealerships, understanding the implications is crucial for staying compliant, fostering trust, and maintaining competitive positioning.
Please note: We emphasise that this article is non-binding and reflects our interpretation of the current legal and regulatory environment. You should seek tailored legal advice as needed, as the ruling may face further review by the Supreme Court.
At its core, the judgment centres on two main issues: secret commission and fiduciary duty. The ruling underscores that dealerships, brokers, and finance providers may now hold a fiduciary duty to ensure impartiality in their advice and information around car finance products. This means that dealerships and brokers are no longer seen solely as facilitators; they are now viewed as trusted advisors, responsible for offering guidance that is free of undisclosed financial motives. This places a direct spotlight on how dealerships and brokers disclose commission structures and their relationships with lenders.
Historically, Financial Conduct Authority (FCA) rules required only a general disclosure of the “existence and nature” of commissions. Yet, the court’s recent judgment now asserts that transparency around commission structure must be taken a step further. Dealerships are now expected to disclose the exact amount and calculation of commission, and secure informed consent from the customer before proceeding.
This involves a shift from simply notifying the customer that commission is involved to providing details on how much commission is being paid and the basis on which it is calculated. Given this precedent, standard terms and conditions may no longer suffice as a means of disclosing commission payments.
Dealerships and brokers now face an immediate need to either adopt stringent disclosure practices or consider restructuring their commission models altogether. Here are the short-term options:
Dealerships must be prepared to communicate honestly about their role in the customer’s decision-making process. Any hint of bias due to financial incentives must be openly discussed with the customer, particularly if it affects the impartiality of advice.
The shift toward full disclosure aligns with an increased emphasis on ethical sales practices across the finance sector. From the customer’s perspective, transparency regarding commission not only builds trust but also clarifies the role of the dealership as a partner in their car-buying journey. This approach may also foster long-term loyalty, as customers are more likely to return to dealerships they perceive as honest and dedicated to their best interests.
For dealerships, this ruling presents an opportunity to distinguish themselves in a crowded marketplace. By proactively adopting best practices in disclosure, dealerships can demonstrate a commitment to consumer protection, reinforcing their reputation as ethical, customer-centric organisations.
While an appeal to the Supreme Court is almost certain, it may take months—or even longer—to receive a definitive ruling. In the meantime, dealerships and brokers must proceed as though these disclosure standards are here to stay. You should consider the following steps to stay agile:
At Marsh Finance, we understand the challenges and responsibilities that dealerships now face in light of this ruling. As a trusted car finance lender, we’re committed to supporting our partners in navigating these changes. Through our streamlined finance solutions and commitment to transparency, we help dealerships adapt while remaining competitive and customer-focused.
By keeping customer interests at the heart of the finance process, dealerships can not only adhere to the new legal standards but also set themselves apart as leaders in responsible automotive finance.
Dealerships and brokers are now expected to be proactive in their disclosure efforts, making transparency a foundational part of the car-buying experience. Though the adjustments required may be complex, they also present an opportunity to build stronger, trust-based relationships with customers.
As the automotive finance industry adapts to these changes, Marsh Finance stands ready to partner with dealerships in ensuring compliance, building trust, and driving sustainable growth in this evolving market landscape. Want to learn more about partnering with Marsh Finance? Get in touch with us today.