Car finance: FCA issues guidance
Law firms lining up claims for motor finance mis-selling have had a busy week, with two notablecourt rulings and a Financial Conduct Authority (FCA) announcement.
Earlier this week, the High Court agreed with a decision made by the Financial Ombudsman Services (FOS) to uphold a complaint relating to a discretionary commission arrangement (DCA) in a motor finance agreement.
The court dismissed all three grounds of appeal brought by the lender, Barclays Partner Finance.
Under DCAs, 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.
Customers were rarely told about the arrangement. Around 40% of car finance deals had such arrangements until the FCA banned them in January 2021; the regulator estimates the average overpayment at about £1,100.
Mr Justice Kerr ruled that FOS had not erred in law in determining that the car dealer should have disclosed the DCA – the FCA rule’s requirement to disclose the existence of a commission arrangement was “wide enough to require, in some cases” disclosure of more than that “bare fact”.
It was open to FOS “to decide that this was a case in which the disclosures made fell short” of what was required.
The judge also rejected challenges that FOS reached an irrational result on quantum and that it was wrong to find the car dealer/broker was acting as the finance provider’s deemed agent under the Consumer Credit Act 1974, making the provider was liable for its acts.
The FCA said: “We welcome the additional clarity this judgment brings to consumer complaints involving DCAs. We are currently reviewing the use of DCAs in the motor finance market before our 2021 ban.
“Our review [which is due to report next May] seeks to understand if there was widespread misconduct related to DCAs, if consumers have lost out and, if so, the best way to make sure any compensation owed is received in an appropriate settlement in an orderly, consistent and efficient way.”
Barclays has indicated it intends to appeal.
The decision is separate from the upcoming Supreme Court hearing in Johnson, which relates to both DCAs and non-DCAs.
The Court of Appeal found it unlawful for car dealers, acting as brokers, to receive a commission from the lender without obtaining the customer’s informed consent. The appeal relates to the application of the common law, equitable principles and the Consumer Credit Act, rather than FCA rules.
Yesterday, the FCA announced that it has extended the time firms have to respond to complaints about non-DCAs to after 4 December 2025, in line with the extension it has already provided for complaints involving DCAs.
Given the high volume of complaints finance companies are facing, the FCA said extending the time would “prevent disorderly, inconsistent and inefficient outcomes for consumers and firms”.
The regulator stressed that, pending the Supreme Court appeal, firms must comply with the law as it stands following the Court of Appeal ruling.
It also published yesterday its expectations under the consumer duty – and particularly the consumer understanding outcome – about how commission arrangements are disclosed.
The other ruling was by His Honour Judge Glen in Southampton in which FirstRand Bank, trading as Motornovo Finance – one of the appellants to the Supreme Court – was the defendant, with Manchester firm Consumer Rights Solicitors, which acted on two of the three conjoined Supreme Court cases, representing the claimant.
Jakub Kasperczak’s claim concerns the £3,434 commission received by Imperial Cars of Swanwick as a result of a hire purchase agreement – this disclosed that a payment “may be payable” and said the amount was available via the broker/dealer on request.
The claim, seeking rescission of the agreement and compensation, is that FirstRand is liable as primary tortfeasor on the grounds that the payment of commission was a bribe, or alternatively as an accessory to the dealer’s breach of fiduciary duty.
Deputy District Judge James at Basingstoke County Court allocated the case to the fast-track but, on appeal by FirstRand, District Judge Lynds – who described it as at best a “half-secret commission” case – reallocated it to the small claims track.
The claimant appealed but HHJ Glen rejected it. The hearing occurred just before the Johnson ruling but he invited counsel to make written submissions on it.
HHJ Glen said the district judge was wrong, at least in light of Johnson, to find there was no realistic prospect of the claimant establishing that this was a secret commission case.
However, he went on: “The law as it applies to the primary issues that arise in cases of this kind is, as the Court of Appeal observed in refusing permission to appeal in Johnson, well settled.
“District judges see ever increasing numbers of claims of this kind in which the same arguments are deployed by the parties, referring to the same authorities (whether properly so called or not). “Evidence is likely to be limited. The district judge’s reference to payment protection insurance claims was apposite. When such claims first came to the fore, it was routinely asserted that their complexity meant that they could only be tried on the fast track. Experience has shown that the small claims track is well suited to such disputes.”
The district judge, HHJ Glen continued, was right to conclude that the case was not unduly complex or that allocation to the fast-track was necessary in order to allow the matter to be tried fairly, either in terms of the directions required or the claimant’s expressed need for representation.
Counsel for the claimant “was careful not to say” that his solicitors would be unable to continue to act in the event of allocation to the small claims track.
“The reality on the ground is that claimants in such cases continue to be represented on that track, albeit that the funding model may provide a less attractive basis for remuneration than an inter partes costs order.”
Leave a Comment