The motor finance industry is reeling from a recent Court of Appeal decision, highlighting lenders’ failures in disclosing commissions to car dealers.
The ruling could trigger a substantial wave of claims against lenders, with the potential for mis-selling valued as high as £40bn. Both defendants in the case, MotoNovo Finance and Close Brothers, have announced temporary pauses in new finance proposals as they update their processes to comply with the judgment.
The judgment emphasises the necessity for informed consent from consumers, superseding the current FCA motor commissions review. This review predominantly focuses on discretionary commission agreements where brokers had leeway to increase interest rates, thus boosting their commissions.
Both defendants in the case have indicated their intention to appeal to the Supreme Court. The Financial Conduct Authority (FCA) has called for a prompt decision from the Supreme Court to determine whether it will hear the appeal and address the substantive issues raised.
Close Brothers highlighted the judgment’s implications for the industry, noting that it imposes a stricter requirement for disclosing commission details compared to the existing FCA rules. Lloyds Banking Group also expressed concerns about this higher disclosure standard, stating their compliance was based on previous FCA guidelines.
Santander, another key player, disagreed with the decision and has delayed announcing its third-quarter results as it assesses potential impacts on its operations. The FCA’s chief executive, Nikhil Rathi, underscored the need for clarity from the courts and emphasised the focus on fair treatment and market functionality.
The FCA is currently evaluating whether to extend the pause on lenders’ deadline for responding to complaints beyond those related to discretionary commission agreements. This pause is presently set to last until December 2025.
The situation highlights a significant shift in the motor finance sector, with the potential for longstanding practices to be challenged. Mr. Rathi assured that discussions with the financial services sector and government are ongoing to evaluate the broader consequences.
The Court of Appeal’s decision marks a pivotal moment for the motor finance industry, potentially reshaping how commissions are disclosed and managed across the sector.
