UK Financial Conduct Authority Supports Expedition of Appeals of Motor Finance Decisions

The U.K. Financial Conduct Authority has published a letter addressed to the Supreme Court regarding the applications for permission to appeal to the SC and requests for expedition in the recent motor finance commission judgments. On October 25, 2024, the Court of Appeal handed down its judgment in three related appeals regarding a lenders' liability to a consumer in the context of a credit broking arrangement—Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282. Allowing all three appeals, the CA stated that there was a fiduciary relationship between the dealer and the consumer. In addition, the court stated that there was a conflict of interest and the consumers had not given fully informed consent to the commission to be paid by the lender to the dealer. In two of the cases, the CA found that the commission had not been disclosed to the consumer and was secret, meaning that the lender was liable. In the other case, the CA found that the partial disclosure negated secrecy, meaning that the lender was liable only as an accessory to the breach of the fiduciary relationship. These transparency requirements go further than the FCA's current rules on commission disclosure. Permission to appeal to the SC decision has since been made.

In its letter, the FCA states that it supports the application for expedition and asks that, in the event that the SC grants the applications, the SC determines the substantive appeal as soon as possible to provide legal certainty for the market. According to the FCA, the applications raise a number of important points of law in relation to the law of bribery and fiduciary duties that are likely to be of great significance for the motor finance sector. These issues impact upon both potential backward-looking liabilities to pay compensation to consumers, as well as forward-looking adjustments to business models. There may also be wider implications for other financial services markets regulated by the FCA that involve intermediary arrangements. The FCA notes that some firms have already made a significant provision for the potential costs in relation to motor finance commissions. Following the judgment, some analysts have pointed to the higher uncertainty and downside risk for affected firms and have increased their forecasts for the likely size of compensation that firms could face as well as the impact on new business. Finally, the FCA highlights that there is a significant and growing volume of motor finance commission complaints. The FCA estimates that there could be over 470,000 motor finance non-discretionary commission arrangement complaints made by the end of January 2025 following the judgment. The issues raised in the applications are likely to be material in considering the merits and appropriate remedies of a significant number of these. The FCA recently consulted on temporary new complaint handling rules for motor finance complaints, and intends to publish its final policy on December 19, 2024.

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