MILS Legal Services Director Christopher Baylis addresses questions surrounding the Court of Appeal’s decision in Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank, and Hopcraft v Close Brothers [2024] EWCA Civ 1282, and how Johnson interacts with the Digital Markets, Competition and Consumers Act (DMCCA).
Q: What’s the biggest takeaway from Johnson?
A: The landmark decision in Johnson has far-reaching implications, fundamentally altering the duties motor dealers owe customers in finance transactions. For the first time, the Court of Appeal found that, under specific circumstances, dealerships arranging finance for customers owe a fiduciary duty. Historically, dealers were required only to avoid conflicts of interest or hidden incentives under what’s known as a “disinterested duty.” With Johnson, however, dealers arranging finance can now be held to the higher standard of fiduciary duty—essentially requiring them to act in the consumer’s best interests even if this conflicts with their own.
The Court emphasised that dealerships must not only avoid financial bias but also fully disclose the details of commission arrangements, including how commissions are calculated and any special terms like a “first refusal” with certain lenders. For dealerships, this means that the days of blanket or vaguely worded disclosures are over; clear, prominent, and accurate explanations are necessary to avoid the risk of fiduciary claims. Johnson redefines the dealer-customer relationship by effectively mandating that dealers act more like “trusted advisors” in financing transactions.
The decision specifically impacts discretionary commission (DIC) models, which the FCA banned in 2021. While Johnson targets historical practices, it establishes compliance standards that dealerships must now adhere to in all future finance arrangements.
Q: What do you think the Supreme Court will do?
A: It is generally expected that an appeal to the Supreme Court will be granted. What happens there, however, is up for debate.
Given the far-reaching changes proposed by Johnson, there’s a reasonable chance that the Supreme Court may revisit the extent of fiduciary duty imposed on dealers. It may opt for a more measured approach, refining the scope of fiduciary duty rather than endorsing a sweeping standard.
Clarifying the contours of “sufficient disclosure” will also likely be high on the agenda, as the Court of Appeal left open questions around what constitutes adequate transparency. How granular do disclosures need to be? Should dealers include itemised commission amounts or simply state that a commission is involved? Such details could drastically impact operational practices across dealerships, and a Supreme Court ruling could provide essential guidance.
Finally, of course, the Court is likely to offer at least some signals about whether or not retrospective enforcement aligns with the FCA’s regulatory intent, as the FCA previously paused enforcement on DIC claims for further review. We don’t expect that the FCA will take further action until the Supreme Court has weighed in.
Ultimately, I hope the Supreme Court will take a pragmatic approach, possibly narrowing fiduciary duty obligations to situations involving higher-stakes or complex transactions where the risk to consumers is most acute. There is a middle ground where the fiduciary duty is limited but with reinforced requirements around transparency.
But I honestly fear that the Supreme Court may not be so pragmatic. There’s a real danger that it may reinforce the new fiduciary duty and simply add some meat to the bones of the Court of Appeal decision.
Q: What’s the relationship between Johnson and the DMCCA?
Johnson intersects significantly with the Digital Markets, Competition and Consumers Act (DMCCA), which aims to overhaul consumer protection, especially concerning unfair practices and transparency in digital and financial markets.
As a reminder, the DMCCA became law in May 2024. It marks a major shift in UK consumer protection and competition law. It strengthens the Competition and Markets Authority’s (CMA) powers to tackle unfair business practices directly, especially in digital markets. Under the DMCCA, the CMA can impose fines on companies for misleading consumers or breaching consumer rights without needing a court order. This Act also empowers the CMA to monitor and regulate large digital companies more closely, aiming to ensure fair competition and protect consumers from hidden fees, fake reviews, and exploitative practices.
Both Johnson and the DMCCA are reshaping dealership practices by focusing on consumer rights and demanding a higher level of accountability. While Johnson centres on obligations in financing, the DMCCA strengthens the enforcement powers of the CMA.
Practically speaking, the Johnson ruling and the DMCCA together signal a tighter regulatory environment for dealerships. The CMA’s enhanced authority to penalise consumer protection breaches, paired with the fiduciary expectations from Johnson, means dealerships must adopt clear, thorough disclosure practices. For example, should a dealership fail to transparently disclose a commission, it could now face dual liabilities—direct action by consumers under the Johnson precedent and penalties by the CMA under the DMCCA.
For dealerships, this convergence of fiduciary duty and stringent consumer protection highlights the need for compliance. Steps like revisiting disclosure language, training staff on finance offerings, and maintaining robust deal records will be critical in staying on the right side of both regulatory frameworks.