We note the Court of Appeal judgment on motor finance commission and are carefully considering its decision.
In January, we introduced a pause to the time firms have to provide a final response to customers about motor finance complaints involving a discretionary commission arrangement (DCA).
We did this to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we review[2] whether motor finance customers have been overcharged because of the past use of DCAs.
In September, we extended the pause[3], in part, so we could account for the outcome of legal cases that may be relevant to our review.
We note the Court of Appeal judgment on 25 October 2024, in Johnson v Firstrand Bank Ltd, Wrench v Firstrand Bank Ltd and Hopcraft v Close Brothers Ltd, and are carefully considering its decision.
Update: 29 October 2024
In a speech at the Investment Association Annual Dinner[4], Nikhil Rathi, our chief executive, spoke about motor finance, saying:
'Last Friday, the Court of Appeal ruled that it was unlawful for car dealers to receive a commission from a lender providing motor finance to a customer unless it was disclosed to the customer and they gave informed consent to the payment.
'The judges' ruling was rooted, not in the FCA's rules, but the longstanding common law principle of fiduciary duty which meant that the broker - the car dealer here - must act in the best interests of the customer and not put themselves in a position of conflict.
'Since the judgment was issued, we have been in close contact with the firms involved, the wider sector and the Government to monitor the market, analyse the impact on industry and consumers and identify what action is required.
'First and foremost, we need clarity on whether this is the courts' final word on the issue.
'The 2 lenders in the case intend to appeal and it is in everyone's interest that when they do, the Supreme Court decides quickly whether it will take the appeal and, if it does, whether it agrees with the Court of Appeal.
'In the meantime, our focus is on ensuring that customers receive fair treatment in line with the law and that the market for motor finance continues to function well, recognising that over 2 million people rely on it each year to buy a car.
'We are encouraging firms to engage with us as they consider the impact the Court judgment has on their products and services, and we are grateful for the way firms have acted responsibly so far.
'We are working closely with the financial services sector, the Financial Ombudsman Service and the Government to understand any wider consequences and further steps needed.
'While the case itself was not focused specifically on discretionary commission, it clearly relates to our work to determine whether motor finance customers have been overcharged because of the past use of discretionary commission agreements.
'For such cases, we have paused until December 2025, the 8-week deadline that firms have to respond to complaints.
'Some in the industry are asking us to expand that pause to cover complaints relating to other types of commission in motor finance.
'We are considering this carefully and working at pace through the potential benefits and risks of doing so.
'We understand industry’s desire for time to take stock.
'Equally, the Court of Appeal has made the law clear and, if that is not challenged further, then firms need to handle any complaints in line with that.'