The Supreme Court has now heard the eagerly-awaited conjoined motor finance Appeals in Johnson & Wrench v FirstRand Bank Ltd (trading as MotoNovo Finance) and Hopcraft v Close Brothers Ltd. These are hugely significant appeals brought by FirstRand and Close Brothers against a unanimous Court of Appeal ruling last October, which found that finance companies paying hidden commissions to motor dealers when arranging finance for customers was unlawful.
The outcome of these appeals will be pivotal for the UK motor finance sector and also civil litigation in financial mis-selling.
Many believe that if the Supreme Court endorse the Court of Appeal’s ruling from October last year, this could lead to one the biggest UK financial sector payouts since PPI. Industry analysts have suggested the overall amount due to consumers could be up to £30 billion.
What is this about?
Central to the appeal was the role played by vehicle dealers and what duties they owed to their customers to disclose hidden commission payments that they typically received from finance companies when arranging finance.
It has been a wide-spread industry practice in PCP or Hire Purchase vehicle finance that the payment of such commissions has been kept secret or only partially disclosed by finance companies within the small print of their finance documentation. Worse still, commissions were paid to dealers without the knowledge or consent of customer.
Supreme Court Hearing – Key Points
The Appellants (‘the Lenders’), Close Brothers and FirstRand pushed back against the Court of Appeal’s decision arguing that vehicle dealers were never meant to bear fiduciary responsibilities to customers, including the duty of undivided loyalty.
The Respondents (‘the Customers’), Johnson, Wrench & Hopcraft maintained that the Court of Appeal was entirely correct to find that when performing credit broking activities (i.e. finding suitable finance for customers) dealers owed a duty to provide disinterested, impartial advice or at the very least an ad-hoc fiduciary duty to act in the best interests of customers. Such duties would extend to being involved in a customer’s decision-making process by giving them full information on the existence and the amount of any commissions being paid and charged to the customer as part of the overall vehicle sale transaction.
At the hearing, the Supreme Court also heard submissions from the Financial Conduct Authority (FCA) and the National Franchised Dealers Association (NFDA).
As regulator, the FCA took a relatively neutral stance. They did however disagree that dealers were fiduciaries but supported having a separate disinterested duty requirement to prevent gaps in the law. The FCA also confirmed that it would consult on a suitable redress scheme if the court’s judgment indicated widespread failings in the motor finance market.
The NFDA argued much in the same way as the Appellants that whilst dealers undertake credit broking tasks, this does not make them fiduciaries. They agreed with the Appellants that dealers cannot be fiduciaries as they do not act with undivided loyalty.
What Happens Next?
At the conclusion of the hearing, Lord Reed indicated that the Supreme Court expects to deliver it’s judgment by July 2025.
The FCA has stated that following the judgment that it will confirm within 6 weeks of the decision whether to press ahead with a consumer redress scheme (upon which it will consult), as an alternative to consumers having to complaint or sue finance companies.
Johnson Law Group said: “Behind the scenes commission payments to dealers for introducing customers has been going on for far too long and we hope that the Supreme Court will now finally draw a line under these underhand selling practices and provide a sound legal basis for fair and proportionate compensation to all those consumers affected by this scandal.”