The Ingeni View
The judgement passed on Friday the 1st August by the Supreme Court in the case of Hopcroft, Johnson and Wrench versus Close Brothers and FirstRand Bank is very welcome. Essentially, it is good news for motor dealers, as common sense seems to have prevailed when it comes to understanding the nature and the role of motor dealers acting as brokers for car finance.
Commonsense has prevailed
The Supreme Court ruled that car dealers do not owe a disinterested, fiduciary duty to their customers. They recognised that motor dealers were providing a commercial service to their customers, and that nobody “could reasonably expect” that car dealerships were doing anything other than “acting in their own commercial interests”.
The court found that motor dealers acting as finance brokers were not mis-selling car finance, and that car buyers would therefore not be eligible for compensation for mis-selling.
It should be noted that the Supreme Court did side with one of the claimants, Marcus Johnson. In his specific case, he was awarded compensation as the process in his case was unfair as he was overcharged by the dealer earning over 50% of the interest charged. And he was misled by the paperwork. Compensation must be paid to Mr Johnson.
It should also be noted that the finance company has been ordered to pay this compensation, not the car dealer.
The Supreme Court also acknowledged the ban of DCA (discretionary commission agreements).
Awaiting the FCA's response
The FCA now has clarity on how to proceed.
DCAs were banned in 2021 and the FCA will decide how to deal with complaints and any due compensation during the current pause on complaints that is already in place. The pause lasts until December when a formal process will be put in place, so don’t expect a quick response.
The compensation/complaints scheme is colloquially referred to as a mass-redress scheme. They FCA has advised consumers not to sign with CMCs (claims management companies) and to await the FCA’s response.
In line with the Judgement, it is likely that the finance companies will fund the compensation, not the car dealer.
In the case of Mr Johnson, it is now clear what is considered to be unfair. The FCA will consider this in its response and plans.
Disclosure
The finance agreement disclosure for Mr Johnson was ruled to be misleading. However, the dealer in question failed to follow the FCA rules in place at the time. Since the Court of Appeal ruling in October 2024, our industry has added additional procedures around consent to receive a commission and the precise amount of that commission.
Our view is that the additional disclosure is no longer required. However, the new disclosure is embedded in dealer procedures and is certainly good practise, so we feel it is likely to remain in place. This could change if the FCA respond or the wider industry sets a new “best practise”.
Summary
If you are a motor dealer, you can be confident that your customers will fall outside the scope of the redress scheme if:
You followed Ingeni’s advice on disclosure
You followed Ingeni’s long standing advice (dating back to 2004) to avoid DCA models
You were not paid over 50% of the interest and/or charges by a finance company as commission
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