In a landmark decision, the Court of Appeal has potentially opened avenues for consumers to claim billions over mis-sold motor finance deals, highlighting breaches in fiduciary duties by car dealers.
The Court of Appeal’s recent verdict has significant implications for the motor finance sector. It found that several motor dealers, acting as credit brokers, failed to adequately disclose commission arrangements within credit agreements for second-hand vehicle purchases. As a result of these omissions, lenders could be ordered to repay substantial amounts in commission fees to affected borrowers.
Three pivotal appeals were presented before the court, where consumers had been offered finance deals for used cars under £10,000. In one instance, commission details were entirely undisclosed, while for the others, they were superficially mentioned in the small print, a practice the court deemed insufficient to inform consumers adequately.
The judges—Lady Justice Andrews, Lord Justice Birss, and Lord Justice Edis—delivered a unanimous judgement, asserting that the dealers owed a ‘disinterested duty’ to their clients. The ruling pointed out a fiduciary relationship existed, where a conflict of interest arose due to undeclared commissions, and consumers’ consent to these commissions was neither informed nor comprehensive.
In past cases, partial disclosure of commissions might have sufficed to protect lenders from primary liability, provided such disclosure negated any secrecy. However, the court clarified that merely including a statement about possible commission in the loan documents’ small print—where borrowers are unlikely to notice—is inadequate unless explicitly brought to the customer’s attention.
Specifically, in one appeal linked to FirstRand Bank, the court described the commission detail as ‘hidden in plain sight’, further determining that the lender bore primary liability due to the lack of transparency. Similar conclusions led to a repayment order of £1,650 plus interest in one case, while determinations on the other two remain pending.
The ruling has emboldened law firms like Manchester’s Consumer Rights Solicitors, which has 17,000 claims awaiting resolution, and other firms including HD Law and Sentinel Legal to further pursue such claims. These firms argue that the potential payouts from cases like this could reach as high as £42bn, implying widespread consumer impact across many lenders.
Kevin Durkin of HD Law remarked on the ruling’s importance, highlighting the guidance it offers against the opaque practices of lenders, such as secret commissions that increase borrower costs unwittingly. Meanwhile, Sam Ward from Sentinel Legal emphasised this development as a major victory for consumer rights, compelling lenders to rectify their opaque financial dealings.
The Court of Appeal also noted existing judicial tensions between prior cases, Hurstanger and Wood, regarding the full extent of lender liability in these scenarios. It pointed out the need for further scrutiny, possibly by the Supreme Court, to conclusively define under what conditions a secret commission results in a principal liability for lenders.
This ruling not only sets a precedent but also signals to lenders the imperative of implementing transparent practices in their financial arrangements, ensuring full disclosure to protect consumer interests.
The Court of Appeal’s decision marks a critical moment for consumer justice in the realm of motor finance. By ruling against non-disclosure of commission-related information, the court has underscored the importance of transparency and fiduciary responsibility in financial transactions. This development promises to significantly impact lenders and dealers, urging them towards more open and consumer-friendly practices. It also opens potential claims routes for numerous affected individuals, setting the stage for substantial repayments and possibly reshaping industry norms.
