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Court of Appeal allows consumer appeals in motor finance cases

The Court of Appeal has allowed the appeals from consumers in three cases relating to motor finance. It heard the cases of Johnson v FirstRand Bank t/a Motonovo Finance, Wrench v FirstRand and Hopcraft v Close Brothers, all of which related to financially unsophisticated customers who had engaged car dealers to get them finance for second-hand cars worth less than £10,000. All the deals, which took the form of hire-purchase arrangements (in one case with an additional personal loan) were arranged before January 2021 when the FCA banned “difference in charge” commission models.

There were some differences between the cases in what was disclosed – or not – to the consumer:

  • in Hopcraft, there was no dispute that the commission was kept secret;
  • in Wrench and Johnson, the claimant did not know and was not told that a commission would be paid, but the lender’s terms referred to the fact that the lender might pay a commission to the introducing broker;
  • in Johnson, the dealer supplied a “suitability document” for the claimant to sign which stated that the dealer may receive a commission from the product provider.

Each claimant had brought a claim in the county court for, among other things, return of the commission, saying the brokers owed them a duty to provide information, advice or recommendation on a “disinterested basis” and that the brokers were “agents” for these purposes. In some cases the commissions were fully secret, but in others the partial disclosure was not enough to count as consent from the borrower. They also all claimed under the CCA that the relationships between the claimant and the lender were unfair because of the non-disclosure of the amount of commission or because the commission was paid in circumstances that meant the broker was in breach of the “disinterested” duty.

All three initial judgements were appealed, and were heard together in July 2024. In summary:

  • all appeals were allowed on the basis that the dealers were acting as credit brokers for the claimants and so had the role of finding a finance deal for the customer that was suitable for their needs and was competitive – and in some cases undertook to find the best or most suitable deal. This meant they owed the “disinterested” duty.  The very nature of the credit broking activities was enough to give rise to this duty unless the broker expressly made it clear to the consumer that they could not act impartially because of their financial incentive from the lenders. The relationship was also a fiduciary one – the court confirmed that it is not necessary for the broker to be an agent in the strict legal sense in order for a fiduciary relationship to arise, it is enough that the broker acts on behalf of the customer in a capacity involving an obligation of loyalty and the “repose of trust and confidence” in relation to the duties performed. In these cases (unlike the PPI cases, where the PPI was an unnecessary adjunct), the claimants all needed the finance in order to afford the cars. In all cases there was a conflict of interest and no informed consent from the consumer for the commission;
  • for the lender to incur primary liability, the commission must be secret. In these cases, there was no disclosure in the Hopcraft case, and insufficient disclosure in the Wrench case to negate secrecy. Although there was sufficient disclosure in the Johnson case to negate secrecy, that disclosure was still insufficient to get the customer’s informed consent to the commission. As a result in that case the lenders were liable as accessories for procuring the brokers’ breach of fiduciary duty; and
  • lack of, or only partial, disclosure of commission will not of itself necessarily be enough to make a relationship between lender and consumer unfair under the CCA – but the Johnson claim succeeded on its specific facts.

So, in all cases, the lender was liable to repay to the customer the amount of the commission.

The FCA said it was carefully considering the decision.

Emma Radmore