The prospects of claims against motor finance lenders continues to develop rapidly as courts, the Financial Ombudsman Service, and the FCA continue to grapple with the issues raised by the large volume of cases being initiated. Here’s the current state of play at a glance:

• The Johnson v Firstrand Bank Court of Appeal decision in October 2024 recast the industry consensus on exposure to secret and half-secret commission claims. In short, the Court ruled that the motor dealers in acting as credit brokers took on a “disinterested duty” to find a suitable and competitive (or in some cases the best) finance deal available from their panel of lenders. That duty conflicted with their interest in receiving commissions from lenders. In cases where the commission was not disclosed at all (a “fully secret commission”) the lenders had primary liability in the tort of bribery for causing the dealers to breach their duty. In “half-secret” commission cases, the Court ruled that dealers had a parallel fiduciary duty, which required them to obtain “fully informed consent” before accepting a commission. Where they failed to obtain that consent, lenders could be liable in equity as accessories to the dealer’s breach of fiduciary duty. The Court also treated cases that might previously have been viewed as half-secret commission cases as fully secret, finding that the partial disclosure had been insufficient to negate the secrecy.
• On 11 December 2024 the Supreme Court granted permission to appeal all three of the joined appeals in Johnson, and indicated that they would be listed before Easter 2025.
• The High Court has today (17 December 2024) ruled against the lender in R (Clydesdale Financial Services Ltd t/a Barclays Partner Finance v Financial Ombudsman Service Ltd. That case was a judicial review challenge to a FOS decision finding a lender liable for breaching FCA Rules (specifically CONC 4.5.3R) requiring disclosure of (in the 2018 version) the existence of commissions on consumer credit transactions, and in the 2021 version the existence and nature of the commission. In the case before FOS, the lender had paid both a small, fixed commission and a larger discretionary commission, linked to the interest rate agreed with the customer. The High Court treated these as two separate kinds of commission, the existence of both of which were required to be disclosed even under the 2018 version of the CONC rule. The Court also decided that representations about the commission were representations “in relation to goods” within the deemed agency provision in s.56(1(b) of the Consumer Credit Act 1974 (“CCA”). Lastly the Court upheld the FOS approach to compensation, that if the commission model had been properly disclosed, the customer would have negotiated the interest rate down to the floor level (i.e. the rate at which the dealer would receive no discretionary commission). The Court rejected the submission that this approach was irrational.
• The lender has already indicated an intention to seek permission to appeal this decision.
• The FCA launched a review of historical motor finance DCAs in January 2024. In doing so it suspended the usual time periods for regulated firms to provide final responses to complaints about motor finance where a DCA was involved, and for consumers to refer complaints to FOS. Those suspensions were extended again in September 2024 to run until 4 December 2025. The FCA is also consulting on a similar extension for non-DCA motor finance complaints, either to 31 May 2025 (after the Supreme Court decision in Johnson), or to 4 December 2025 (to align with the DCA complaints extension). The outcome of that consultation will be published on 19 December 2024. The FCA also says it plans to set out its next steps on DCA complaints in May 2025. We are anticipating a consumer redress scheme, probably under s.404 FSMA.

We are aware of enormous amounts of activity on all sides in response to these developments. Claims management firms and claimant-side lawyers and claims introducers are very active in recruiting claimants and pursuing claims via a range of strategies. A number of funders are actively seeking to deploy capital in support of claims. And aside from the lenders directly involved in the active cases and the FCA’s review, lenders and motor dealers are assessing their exposure to claims and contingency planning for the various scenarios as the cases reach the higher courts and the FCA crystallizes its views.