In a landmark judgment that has since sent ripples across the UK motor finance industry, the Court of Appeal introduced stricter standards for commission disclosure, raising significant implications for lenders, brokers, and consumers alike. In this article, we summarise what we know so far and any key developments in this ongoing story going into 2025.
Background
Earlier in 2024, the Financial Conduct Authority (FCA) launched an investigation into potential overcharging of car finance customers under Discretionary Commission Agreements (DCAs). The investigation highlighted claims from three consumers who argued that car dealers, acting as brokers, failed to adequately disclose commission payments; undermining the impartiality of the financial advice provided and potentially leading to unfair outcomes for customers.
While the initial investigations focused on DCAs, which were banned in 2021, the Court of Appeal decision significantly broadened the scope to encompass any car finance commissions. The Court of Appeal’s hearing in these matters, delivered against the context of the FCA’s ongoing review, as mentioned above, underscores the complexity and significance of these matters for the industry.
Timeline of events
2024
January - FCA review
On 11 January 2024, the FCA announced that they would be undertaking a review into the past use of DCAs and whether motor finance borrowers had been historically overcharged. This followed a high number of complaints from borrowers claiming compensation for pre-2021 commission arrangements where, in two events, the Financial Ombudsman Service found in favour of the complainants. This finding prompted the FCA to launch a review of historical commission arrangements, using the powers granted to them under s166 of the Financial Services and Markets Act 2000 (FSMA).
October - Court of Appeal ruling
The Court of Appeal issued its judgment in three key cases: Johnson v FirstRand Bank, Wrench v FirstRand Bank, and Hopcraft v Close Brothers Limited. The court ruled:
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Brokers must disclose both the existence and size of commissions.
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Brokers must provide suitable information, advice and recommendations on an impartial basis to the borrower in relation to the credit options available.
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Car dealers acting as credit brokers owe a fiduciary duty when locating finance for borrowers.
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Merely mentioning commissions in loan documents is insufficient for obtaining informed consent.
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All the aforementioned duties would apply, unless the borrower had been adequately and clearly informed that they did not apply or in the event that the broker was unable to act impartially.
November - FCA reviews
The Financial Conduct Authority (FCA) began reviewing its rules on commission disclosure, aiming to align its standards with the Court’s stricter requirements.
The initial market response to the ruling led to significant declines in share prices among those providers involved. On a broader scale, numerous motor finance providers paused underwriting new agreements in order to review their practices in light of the ruling.
Key dates in 2025
April - Supreme Court hearing
On 11 December, 2024, the Supreme Court confirmed that it will hear the appeal of FirstRand Bank and Close Brothers. The hearing is set to take place on 1 April, 2025.
May - FCA rule updates
The FCA is anticipated to set out ‘next steps’ in their review of DCAs and provide an update on motor finance non-DCA commission complaints in May 2025. However, given the reasonably short timeframe between the Supreme Court hearing and these planned communications, the FCA has warned that anything released by them in May is still subject to the progress of the appeal, and the timing and nature of any decision.
As lenders and brokers adapt to the evolving regulatory landscape, more clarity is expected on:
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Compliance requirements for future agreements.
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Handling of compensation claims for past agreements.
December - Complaints response deadline
On 19 December, 2024, the FCA confirmed that firms now have until after 4 December 2025 to provide final response to DCA and non-DCA complaints.
Conclusion
The UK motor finance industry is undergoing a transformative period as it grapples with the implications of the Court of Appeal’s landmark ruling. While the upcoming Supreme Court appeal and FCA rule updates in 2025 promise further clarity, the need for transparency and consumer-focused practices has already been firmly established.
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