Posted by Tom Callaghan, director of partnerships at Legal Futures Associate Sentry Funding
Callaghan: Ruling is a major boost to consumers already bringing cases
As Legal Futures reported last month, the Financial Conduct Authority (FCA) will be urging the Supreme Court to move as quickly as possible in relation to a key ruling on motor finance. The regulator is taking an active approach to this important issue.
In Hopcraft v Close Brothers Ltd, Johnson v Firstrand Bank Ltd and Wrench v Firstrand Bank Ltd, the Court of Appeal ruled it unlawful for car dealers, who were acting as brokers, to receive a commission from the lender providing motor finance without having obtained the customer’s informed consent to the payment.
This required the consumer to be told all material facts, including the amount of the commission and how it was to be calculated.
The ruling is a major boost for the large numbers of consumers currently bringing cases in the lower courts, seeking justice after discovering they were charged commissions that they were not properly told about when they took out motor finance. Sentry Funding is supporting many such cases.
The FCA noted that motor finance firms are likely to receive a “high volume of complaints” in response to the judgment, which the lenders have said they intend to appeal to the Supreme Court.
In a webinar with market analysts on motor finance last month, FCA chief executive Nikhil Rathi said the regulator had been engaging with trade bodies, motor finance firms and consumer groups to garner views on the impact of the judgment across the market.
He added that, once an application to appeal to the Supreme Court has been confirmed, the FCA would be writing to the Supreme Court to ask for it to make a decision on permission to appeal quickly, and if permission is granted, for the substantive hearing to take place as soon as possible.
“This is because the potential impact to both the market and consumers is material… we stand ready, should the court agree, to assist by intervening in the case with whatever assistance we can provide to the Supreme Court should they go down that route.
‘But pending any further information from the Supreme Court, as it stands today, motor finance lenders and brokers are required to comply with the Johnson judgment both for new business and when responding to relevant complaints.”
The FCA also announced that, given the high levels of complaints that motor finance firms are now likely to receive, it would consult on “extending the time that firms have to respond to consumer complaints about motor finance where a non-discretionary commission was involved, and for consumers to refer them to the Financial Ombudsman Service”.
The Court of Appeal judgment related to fixed commission in motor finance agreements as well as discretionary commission arrangements, which were banned by the FCA in 2021. A time extension is already in place for motor finance complaints relating to the latter.
Mr Rathi said: “If we do not consider an extension for non-discretionary commission arrangement motor finance complaints, there’s a risk they could be treated differently, despite the underlying product being the same, and the judgment applying to both types of commission arrangement.”
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