The FCA has published summary grounds of intervention in support of its application to intervene in the appeals relating to motor dealer-broker commissions. The FCA wants to intervene in writing and for up to an hour orally within the 3 day hearing. The letter:
- notes that there are thousands of County Court proceedings pending in respect of motor dealer commissions, which tend to involve claims of unfair relationships under the CCA and private law claims in respect of secret commissions and fiduciary duties;
- says there are also hundreds of pending consumer complaints against brokers and lenders – and that one of the “lead” complaints adjudicated by the FOS has now been subject to an unsuccessful (but now under appeal) judicial review challenge;
- summarises the FCA’s decision to put a pause on the time for resolving motor finance complaints;
- explains the work the FCA has done in the area since 2017 including the ban on DCAs introduced in 2021 at which time it made additional amendments to the commission disclosure requirements in CONC – and explains that the ban led to high numbers of complaints about past DCAs;
- says the FCA’s initial actions were aimed at reviewing historical DCAs and sales but that the Court of Appeal judgment in the Wrench, Hopcraft and Johnson cases has now raised the prospect of a “sharp and significant” increase in complaints about a broader range of commission arrangements including flat-fee commissions;
- explains that the FCA will need to balance a range of statutory objectives in deciding what market-wide steps may be appropriate – and that these steps could include a market-wide redress scheme;
- highlights that, while the Court of Appeal considered only the facts of the cases before it, there is some wider concern that the judgment could be read to apply to intermediaries beyond the motor finance sector – so to that extent anything the Supreme Court says about the key conditions in which fiduciary or disinterested duties may arise if of significant relevance to the FCA;
- urges the Supreme Court to provide authoritative guidance; and
- explains that because of the FCA’s role and responsibilities it is vital for it to be able to participate in the proceedings.
The submission goes on to discuss the relevant Handbook rules and notes that the Court must be apprised of their proper meaning – rather than “simply take as given” any particular party’s views. It notes the judge’s view in the judicial review challenge that CONC 4.5.3R as it was before January 2021 did in certain circumstances require more than the bare fact that commission is or may be payable – a view with which the FCA agrees. The FCA wants now to be able to assist the Supreme Court as to the proper interpretation of its rules.
The FCA wants to make targeted submissions on grounds 1-4 and 6 of the appeal, focussing on private law issues that overlap with and may be impacted by the regulatory framework. Specifically:
- the FCA does not agree with the stark statement of the Applicants that because the brokers were not advising they therefore did not owe any disinterested or fiduciary duty to the customers – the FCA says the position is more nuanced and that the relationship between private law and regulation is subtle. While the latter is not “ousted” by the former, it should in appropriate cases be understood in a way that takes into account the regulatory balance;
- given the Court of Appeal’s indication that going back to first principles would be a good thing, the Court should have the full picture as to the legal and regulatory framework to help it when it is setting boundaries between secret and half-secret commissions, and disinterested and fiduciary duties;
- the importance of properly characterising the relationship between the broker and consumer – which is inherently fact-sensitive. The FCA feels it can develop submissions to this point from the regulatory perspective and help the Court consider the issues from first principles by explaining how the regulatory framework treats credit brokers. It would also explain how it has addressed treatment of vulnerable customers;
- in response to the lenders’ submissions that payment of commission to a broker when the lender knows the broker is a credit broker does not amount to dishonest conduct by the lender for the purposes of accessory liability, the FCA again wants to present its view – which is essentially that the lender ought properly to take some responsibility as to the arrangements it has with the broker, but that the way the Court of Appeal judgment approached accessory liability risks diluting the meaning of dishonesty. The FCA would focus on Principle 8, CONC 1.2.2R and CONC 4.5.2G;
- contributing its views on the stance that compliance of disclosures with regulatory requirements of itself obviates the need for common law or equity to analyse the position differently; and
- on the CCA unfair relationship argument, the FCA considers that there is no basis to impugn the decisions of the lower courts as primary decision makers.