In a recent commentary, financial advisor Martin Lewis expressed concern that the Court of Appeal’s decision in Wrench v FirstRand Bank Ltd and related cases has “gone too far.” However, his perspective overlooks critical legal and ethical nuances highlighted in the judgment. The ruling, far from being excessive, is a measured step toward ensuring transparency and fairness in financial transactions, particularly in motor finance arrangements.

Understanding the Court’s Decision

The Court of Appeal judgment addressed whether the disclosure of commissions paid by lenders to motor dealers was adequate. The decision clarified that partial or buried disclosures, such as vague mentions in terms and conditions, do not satisfy the duty of transparency owed to consumers. Crucially, it found that motor dealers and brokers owe a fiduciary duty to consumers, requiring impartial advice when arranging finance, and that lenders can be held liable as accessories if they fail to ensure proper disclosure.

This is not an overreach. It corrects a systemic imbalance where consumers were often unaware of commission structures, always unaware of the amount of commission paid, and which incentivised dealers to prioritise profit over the consumer’s best interest. The judgment explicitly ruled that failing to disclose the scale or nature of commissions creates an unfair relationship under the Consumer Credit Act 1974, particularly when commissions are disproportionately high compared to the borrowed amount.

Why Martin Lewis’ Critique Misses the Mark

• Focus on Consumer Vulnerability: Lewis’ argument downplays the vulnerability of many consumers who depend on motor finance to access vehicles. The Court recognised that these individuals trust dealerships to act in their best interest. By reinforcing the fiduciary duty and disclosure requirements, the ruling prioritises consumer protection over industry convenience.
• Cheaper Finance for UK Consumers: Lewis has fallen into the trap of believing the narrative of the finance sector, which has suggested the judgment could jeopardise the industry and lead to more expensive credit for consumers. However, the judgment forces lenders and dealerships to now be upfront and open about commissions paid. This may, and should, result in the payment of commissions being removed or reduced. As consumers ultimately pay the commission via the interest paid on finance agreements, the removal of commission would result in cheaper finance options available as a result of a more competitive, fair and transparent marketplace.
• A Balanced Approach: The Court did not order the recission of the finance agreements included within the case. Recission would have had an earth shattering impact upon the finance industry, which it could be argued is long overdue. Instead, it allowed for the repayment of the hidden commissions that were unknowingly paid by the consumers via their finance agreements. This restraint reflects an intention to balance consumer rights with industry feasibility.

The Broader Implications

The decision strengthens the foundation for fairer practices across all consumer credit arrangements involving undisclosed commissions, not just in motor finance. Claims management companies and consumer advocates welcome this clarity, while lenders will need to adjust their practices to align with these higher standards.

In conclusion, while Martin Lewis raises valid concerns about potential litigation impacts, the Court’s judgment is a necessary intervention to rectify widespread unfair practices. It ensures that consumers are no longer kept in the dark about commission arrangements that could influence their financial decisions. This is not a case of the courts going “too far” but rather doing what is needed to restore trust in financial transactions.