The Court of Appeal has upheld an appeal against Close Brothers, First Rand Bank and MotoNovo Finance ruling that motor dealers acting as credit brokers have a duty of loyalty to their customers.
The decision could pave the bay for billions of pounds to be paid out to customers although Close Brothers has said it is going to the Supreme Court to appeal the decision.
The Court of Appeal ruled that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment.
The court ruled that in order for consent, the consumer would need to be told all material facts that might affect their decision, including the amount of the commission and how it was to be calculated.
In a statement Close Brothers said: “Close Brothers disagrees with the Court’s extension of the existing case law in this area and intends to appeal this decision to the UK Supreme Court.
“The Court has determined that motor dealers acting as credit brokers owe both a disinterested duty and a duty of loyalty (“fiduciary duty”) to their customers.
“This sets a higher bar for the disclosure of and consent to the existence, nature, and quantum of any commission paid than that required by current FCA rules, or regulatory requirements in force at the time of the case in question.”
Stephen Haddrill, Director General of the FLA, said: “This is a significant and unexpected judgment, the implications of which stretch far beyond the motor finance sector, making it an issue that demands the immediate attention of the Financial Conduct Authority (FCA).”
The FCA said: “In January, we introduced a pause to the time firms have to provide a final response to customers about motor finance complaints involving a discretionary commission arrangement (DCA).
“We did this to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we review whether motor finance customers have been overcharged because of the past use of DCAs.
“In September, we extended the pause, in part, so we could account for the outcome of legal cases that may be relevant to our review.
“We note the Court of Appeal judgment on 25 October 2024, in Johnson v Firstrand Bank, Wrench v Firstrand Bank and Hopcraft v Close Brothers Ltd, and are carefully considering its decision.”