An update on motor finance

Commentary | 19/12/24

As many of you will know, the motor finance world was hit hard in October with the Court of Appeal judgment in the Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcraft v Close Brothers cases.

The Court of Appeal decided it was unlawful for motor finance brokers to receive a commission from the lender providing motor finance without getting the customer’s informed consent to the payment.

This decision surprised many because this case marks a significant shift in how Courts view lenders’ duties toward consumers in cases involving commission payments. Firms were tasked with making changes to their processes very quickly.

This decision came on the back of what has already been a very busy year for motor finance providers. In January this year, the FCA launched a review of historical motor finance Discretionary Commission Arrangements (DCAs).

The review seeks to understand if there was widespread misconduct related to DCAs before the 2021 ban, if consumers have lost out and, if so, the best way to make sure appropriate compensation is paid in an orderly, consistent and efficient way.

Alongside the review, motor finance firms were given more time to provide final responses to complaints about motor finance where a DCA was involved, and consumers more time to refer their complaints to the FOS. This was to prevent inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while the FCA reviewed the issue and determined the best way forward.

In September, the FCA further extended this until 4 December 2025. Before deciding its next steps, the FCA wanted to take account of relevant court decisions. These included the judicial review by Barclays Partner Finance of a Financial Ombudsman decision relating to a DCA in a motor finance agreement and the recent Court of Appeal judgment mentioned above.

Last week we got the news that the Supreme Court will hear an appeal against the Court of Appeal’s judgment. This will likely take place between January and mid-April next year.

While the Supreme Court will hear an appeal, firms must still comply with the law as it stands when arranging new motor finance agreements.

There was further movement today when the FCA confirmed that it will extend the time firms have to respond to complaints about motor finance agreements, not involving a DCA.

Firms now have until after 4 December 2025 to provide a final response to non-DCAs, in line with the extension already provided for complaints involving DCAs.

The regulator has also provided guidance for firms when communicating with affected customers. If you are reviewing your approach, we suggest this as an essential checklist of issues.

So, it has undoubtedly been a tumultuous year for the sector. Firms should be focusing on ensuring that they are communicating with customers in the right way, whilst also preparing for the continuation of the FCA’s review.

The FCA plans to set out next steps in May 2025, but this will be somewhat dependent on the progress of the appeal to the Supreme Court and the timing and nature of any decision.

Firms should fasten their seatbelts as the journey is not over yet. The CCTA remains committed to supporting members through this process via our motor finance roundtables and associated guidance.