Car dealers: FCA wants certainty
The motor finance market has reacted with alarm to last week’s Court of Appeal ruling that lenders failed to clearly disclose commissions paid to car dealers.
The decision in three conjoined cases could open the door to a deluge of claims, with the potential scale of mis-selling put at anywhere up to £40bn.
The Financial Conduct Authority (FCA) has urged the Supreme Court to make a rapid decision on whether it will hear the appeal that both defendants have said they will see and, if so, on the substantive appeal too.
The decision, which laid out the need for informed consent, went beyond the scope of the ongoing FCA motor commissions review, which is focused on discretionary commission agreements – these were where lenders gave brokers and car dealers discretion to push the interest rates higher, and the more they did that, the more commission they would receive.
It supports claims based on any type of undisclosed, or partially undisclosed, commission, and could even extend beyond motor finance.
MotoNovo Finance (the trading name of FirstRand Bank, the defendant in two of the cases) has temporarily paused accepting new finance proposals “while we make important updates to our processes”.
The other defendant, Close Brothers, said that in deciding that motor dealers acting as credit brokers owed both a ‘disinterested’ duty and a fiduciary duty to their customers, the court had set “a higher bar for the disclosure of and consent to the existence, nature, and quantum of any commission paid than that required by current FCA rules, or regulatory requirements in force at the time of the case in question”.
Subject to the appeal to the Supreme Court, it went on, “the judgment may set a precedent for similar claims, which may (depending on the specific facts of those cases) result in significant liabilities for the group”.
It too said it would temporarily pause writing new motor finance business to ensure compliance with the ruling, a position taken by Honda as well.
Lloyds Banking Group, which is heavily involved in motor finance, also complained about the higher bar imposed by the Court of Appeal, saying its understanding of compliant disclosure “was built on FCA/regulatory guidance and previous legal authorities”.
Santander said it disagreed with the ruling as well. It delayed its third quarter 2024 results announcement, which was due on Tuesday, while it considered “the potential exposure it creates for the Santander UK Group”.
In a speech on Tuesday, FCA chief executive Nikhil Rathi said the priority was “clarity on whether this is the courts’ final word on the issue”.
He continued: “The two lenders in the case intend to appeal and it is in everyone’s interest that when they do, the Supreme Court decides quickly whether it will take the appeal and, if it does, whether it agrees with the Court of Appeal.
“In the meantime, our focus is on ensuring that customers receive fair treatment in line with the law and that the market for motor finance continues to function well, recognising that over two million people rely on it each year to buy a car.”
Mr Rathi added that the FCA was working with the financial services sector, the Financial Ombudsman Service and the government “to understand any wider consequences and further steps needed”.
For cases involving discretionary commission agreements, the FCA has paused until December 2025 the eight-week deadline that lenders have to respond to complaints.
Mr Rathi said: “Some in the industry are asking us to expand that pause to cover complaints relating to other types of commission in motor finance. We are considering this carefully and working at pace through the potential benefits and risks of doing so.
“We understand industry’s desire for time to take stock. Equally, the Court of Appeal has made the law clear and, if that is not challenged further, then firms need to handle any complaints in line with that.”
We will be discussing the potential of this area of practice at our Claims Futures conference on 12 November in Manchester.
Sarah Charlton 
Appeal