Court of Appeal to Hear Landmark Case on Motor Finance Commissions

The Court of Appeal is scheduled to hear a consolidated proceeding of three cases that could significantly impact how undisclosed commissions in motor finance deals are legally handled or could influence regulatory or industry practices going forward.

The landmark case, set to be heard this week, combines three motor finance commission cases wherein individuals are pursuing car finance claims against their lenders. The individual cases are:

• Hopcraft v. Close Brothers,
• Wrench v. Firstrand Bank, and
• Johnson v. Firstrand Bank and Motonovo Finance.

The case will be heard by Lord Justice Birss, Lady Justice Andrews, and Lord Justice Edis.

The proceedings are scheduled to continue until Thursday, and can be watched remotely on the Judiciary’s YouTube account.

The individual cases were not brought up with the Financial Ombudsman Service, as the claimants pursued the defendants through court proceedings in regional courts throughout England.

Last year, Kingston-upon-Hull Combined Court dismissed Hopcraft’s Close Brothers finance claim.

In the individual cases against Firstrand Bank, the claimants are appealing an appeal by County Courts.

In March, all cases were granted permission to appeal the decisions of their respective courts.

The court will look at whether finance companies have any responsibility to customers when they pay a commission to dealerships for setting up finance agreements. It will also consider how laws on undisclosed or partially disclosed commissions apply to these motor finance payments.

Representing Close Brothers in the defence is 3VB, led by barrister Ian Wilson KC, who is instructed by Russell Kelsall, a partner at Walker Morris.

Meanwhile, Firstrand and Motonovo are represented by lead barrister Matthew Hardwick KC, instructed by Eversheds Sutherland (International) LLP.

Appellant Marcus Johnson is represented by led barrister Robert Weir KC, instructed by HD Law Ltd, while both appellants Andrew Wrench, and Amy Louise Hopcraft and Carl Hopcraft, are represented also by Robert Weir KC, instructed by Consumer Rights Solicitors.

In its May update on motor finance commission complaints, the Financial Ombudsman has said that it “recognises” that the judicial review by Barclays Partner Finance and the decisions of the Court of Appeal “could have an impact” on the way to deal with similar complaints.

The Motor Finance Landscape

The Financial Conduct Authority announced in January that it would investigate the commission deals and sales of several companies in the motor finance industry. This review will cover finance deals entered into between April 2007 and January 2021, which essentially are the dates when the Financial Ombudsman started to handle discretionary commission arrangements and when such a commission structure was abolished.

Stock analysts have projected that banks in the motor finance sector will be slapped with compensation payments in the range from £13 billion and £16 billion. 

Motor finance companies have been bracing themselves for potential compensation costs associated with the FCA’s review of the discretionary commission arrangements, which had incentivised brokers to set their customers’ interest rates in motor finance deals higher than the lenders’ base rates.

Close Brothers has decided to scrap dividend payments on its ordinary shares earlier this year as part of its plan to raise £400 million to its capital by 2025. Analysts expected Close Brothers to be the lender with the largest relative impact on the FCA matter. The bank is forecasted to face compensation costs of almost £200 million.

On the other hand, Lloyds, which is the parent company of the country’s biggest auto lender, Black Horse, disclosed in February that it has £450-million provision amid the FCA probe.

Firstrand, South Africa's largest bank by market value, announced last week that its earnings for the second half of the financial year would be reduced due to setting aside funds in preparation for the FCA's review.

The FCA is expected to outline its next steps in the review this September in order to provide more clarity on potential compensation costs.