Car Litigation: Please pay attention because it is going to be huge!

The recent UK Court of Appeal ruling in Johnson v. FirstRand Bank and Hopcroft v. Close Brothers ([2024] EWCA Civ 1282) has sent ripples across the car finance industry. This landmark case sheds light on consumer rights regarding undisclosed commissions and raises critical questions about transparency in financial dealings.

Key Findings and Implications to Car Litigation

1. Undisclosed Commissions

The court revealed that auto dealers often act as brokers for lenders while simultaneously serving as sellers. Many of these brokers earned undisclosed commissions, creating a breach of “disinterested duty.” The judgement clarified that consumers have a right to unbiased advice on financing options, free from financial incentives concealed by dealers.

2. Conflict of Interest

This case highlighted the inherent conflicts of interest in undisclosed commissions. Dealers frequently pushed consumers towards financing options with higher interest rates to maximise their own commissions, often without the consumers’ fully informed consent.

3. Impact on FCA Regulations

This ruling aligns with the Financial Conduct Authority’s (FCA) prohibition on commission structures based on increasing customer interest rates, which took effect in January 2021. The decision reinforces the importance of transparency and fairness, requiring lenders and brokers to disclose commission arrangements.

4. Potential for Compensation

The judgement paves the way for consumers to seek compensation for undisclosed commissions. Billions of pounds in potential refunds could be at stake, and the case sends a clear message to lenders and brokers: non-transparent commission practices expose them to significant liabilities.

5. Broader Consumer Finance Implications

Beyond car finance, this case establishes a precedent that could influence other financial products where brokers serve consumers. The ruling reaffirms that brokers must prioritise transparency and uphold the consumer’s interests.

How to File a Complaint for Undisclosed Commissions

If you suspect undisclosed commissions have led to overcharges on your vehicle financing agreement, follow these steps to lodge a complaint and potentially secure compensation:

Step 1: Compile Necessary Information

• Finance Agreement Details: Gather all relevant documents, including the agreement date and the type of financing (e.g., Personal Contract Purchase (PCP) or Hire Purchase (HP)).
• Commission Disclosure: Review the agreement to check for any mention of commissions paid to the dealer or broker.

Step 2: Determine Eligibility

• Agreement Date: Your car finance agreement must have been entered into before January 28, 2021, as discretionary commission arrangements were banned after this date.
• Type of Agreement: Ensure your financing falls under PCP or HP agreements, not leasing or Personal Contract Hire.

Step 3: Contact Your Finance Provider

• Identify the Correct Entity: The finance provider is typically the company that provided the loan—not the dealership. Check your credit agreement or report for clarity.
• Submit a Formal Complaint: Write to your finance company explaining your concerns about undisclosed commissions. Include agreement specifics and supporting documentation.

Note: A template for this complaint will soon be available on our website.

Step 4: Await a Response

• Due to ongoing investigations, the FCA has extended the deadline for firms to respond to complaints until at least December 4, 2025. Providers may take longer than usual to reply.

Step 5: Escalate If Necessary

• Financial Ombudsman Service (FOS): If the provider’s response is unsatisfactory or delayed, escalate your complaint to the FOS. This free service resolves disputes between consumers and financial institutions.

Step 6: Avoid Scams

• Beware of Unsolicited Offers: Be cautious of companies offering to recover funds in exchange for a fee. Legitimate claims through the FOS or your finance provider do not involve upfront fees.

Step 7: Stay Informed

• Keep track of updates on the FCA’s investigation and any changes to the complaint process or deadlines. Reliable updates can be found on the FCA’s official website.

The Path Forward: A Shift in Consumer Protection

This landmark ruling underscores the importance of financial transparency and consumer rights. As more consumers become aware of undisclosed commissions, the financial industry is likely to see a surge in claims, not only in car finance but also in other sectors relying on brokers. For businesses, the takeaway is clear: transparency is not just a regulatory requirement but a cornerstone of trust.

Need Assistance?

If you believe you may have been affected by undisclosed commissions or need guidance on filing a complaint, contact us at info@lawdit.co.uk or call 023 8023 5979. Our team is here to help you navigate these complex legal issues.

Stay tuned for templates and additional resources on our Reading Room page.

FAQs

1. What are undisclosed commissions in car finance?

Undisclosed commissions refer to payments made by lenders to auto dealers or brokers without the consumer’s knowledge. These commissions can influence brokers to push financing options that may not be in the consumer’s best interest, leading to higher costs for borrowers.

2. How can I check if I’m eligible for compensation for undisclosed commissions?

To determine eligibility, review your car finance agreement. Ensure the agreement was entered into before January 28, 2021, and check if your contract falls under Personal Contract Purchase (PCP) or Hire Purchase (HP) agreements. Leasing or Personal Contract Hire agreements typically don’t qualify.

3. What steps should I take to file a complaint about undisclosed commissions?

1. Gather your car finance agreement and supporting documents.
2. Contact your finance provider with a formal complaint.
3. If unsatisfied with the response, escalate your complaint to the Financial Ombudsman Service (FOS).