Car dealers are not being bribed by their finance company partners and are not expected to show loyalty to their car buying customers, at the expense of their own commercial interests, the UK’s Supreme Court has ruled.
But the importance of commission being at fair levels, and being made clearly apparent to buyers, has been upheld.
The Supreme Court has made its decision on motor finance commissions in the Johnson v FirstRand Bank (trading as MotoNovo), Wrench v FirstRand Bank and Hopcraft v Close Brothers cases. It rejected arguments by Wrench and Hopcraft, but has upheld Johnson’s claim.
It means the end of the three linked cases which threatened to open floodgates to widespread compensation claims costing billions of pounds, which would also damage the level of healthy competition in the motor finance market and impact on the car markets, which generate huge VAT receipts for the Treasury.
Three companies have already withdrawn from the UK’s motor finance market in the last 12 months.
Nevertheless, the court has determined that in one case, Johnson v FirstRand Bank (trading as MotoNovo), Johnson’s relationship was unfair, in breach of the Consumer Credit Act 1974, because of the considerable level of commission the lender paid the car dealer, worth 55% of the total cost of the credit, and because the documents did not disclose the financial position and in fact intended to create the impression that the dealer offered a panel of products and recommended one.
A Treasury spokesperson said: “We respect this judgment from the Supreme Court and we will now work with regulators and industry to understand the impact for both firms and consumers.
“We recognise the issues this court case has highlighted. That is why we are already taking forward significant changes to the Financial Ombudsman Service and the Consumer Credit Act. These reforms will deliver a more consistent and predictable regulatory environment for businesses and consumers, while ensuring that products are sold to customers fairly and clearly.”
The Financial Conduct Authority’s existing examination of motor finance firms’ historic discretionary commission arrangements (DCA) with their dealer partners, which had been paused while these cases were pursued, is expected to recommence.
National Franchised Dealer Association chief executive Sue Robinson said the organisation is pleased with the Supreme Court’s decision.
“NFDA provided both written and oral submissions that have helped the Supreme Court reach this verdict. As the consumer facing part of the sector, NFDA want to see the regulator act fairly to ensure that UK consumers receive a satisfactory result. This has been achieved today.
“Automotive retail accounts for approximately 78% of the broader automotive workforce, we provide a perspective that is at the coal face of dealing with customers. As we move forward from this case NFDA will continue to provide support to its members ensuring that the UK has a healthy and functioning motor retail market.”
More follows shortly…
Richard Coates, partner and head of automotive at leading law firm Freeths, said: “This is a significant judgment for lenders and dealers. As we predicted, whilst the Supreme Court found that dealers do not owe a fiduciary duty of trust and confidence when arranging car finance for their customers, the judgment opens the gateway for consumers to bring claims under the Consumer Credit Act, where particularly large commissions have been paid and the relationship is therefore unfair. It is anticipated that the FCA will bring redress for those cases where it is deemed that the relationship is unfair and we expect to learn more from the FCA about this redress scheme within the next six weeks.”