S&U PLC (LSE:SUS), the specialist lender and parent company of Advantage Finance, has welcomed the Supreme Court’s judgment on motor finance commissions, describing it as “a victory for common sense”.
The decision, handed down on Friday, overturns an earlier Court of Appeal ruling from October 2024, which had found that car dealers owed a legal duty to act in the best interests of customers when arranging loans, and that commission payments to dealers or brokers could amount to a “bribe”.
The Supreme Court rejected that view, but did uphold the principle that lenders could be found to have created an “unfair relationship” under the Consumer Credit Act if they paid commissions that were inflated or misled customers about the total cost of credit.
The Financial Conduct Authority, the industry’s chief regulator, has since announced plans to consult on a compensation scheme covering both discretionary commission arrangements and cases that could involve unfair relationships between lenders and borrowers.
Advantage Finance, which provides loans for car purchases, said it had never used discretionary commission models, where brokers can set their own commission levels, and was confident that any potential cases of unfair relationships would be minimal.
Discretionary commission arrangements have come under scrutiny for allowing dealers or brokers to adjust their own remuneration, sometimes at the expense of transparency for customers.
Karl Werner, chief executive of Advantage Finance, said: “The Supreme Court’s decision provides legal clarity for the motor finance industry and is entirely consistent with the level and quality of the service Advantage has been proud to provide its customers for over 25 years.
"We therefore welcome this ruling and the firm platform it gives us to continue the strong and consistent recovery we are enjoying this year.”
Anthony Coombs, chairman of S&U, said: “This decision is a victory for common sense.
"It will significantly boost confidence throughout the motor finance industry and benefit lenders and consumers alike in attracting investment and increasing competition.
"As such, it is entirely consistent with the Treasury’s recent emphasis on regulation, which encourages growth and which will, in the words of the Financial Conduct Authority, ‘ensure the integrity of the motor finance market, so that it works well for future consumers.’”