The FCA is consulting about whether it should extend the time that motor finance firms have to handle commission complaints. This follows last month’s controversial decision of the Court of Appeal in Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282.

The ruling is complex, but in summary, the Court of Appeal decided it was unlawful for the brokers (car dealers) to receive a commission from the lender providing motor finance without obtaining the customer’s informed consent to the payment. This required the consumer to be told all material facts, including the amount of the commission and how it was to be calculated. The judgment related to fixed commission in motor finance agreements as well as discretionary commission arrangements (DCAs), which were banned by the FCA in 2021. 

Since that judgment, the FCA has undertaken industry engagement. The FCA has also discussed the judgment’s implications with consumer representatives. Motor finance firms are likely to receive a high volume of complaints in response to the ruling. Any complaint extension would allow them time to consider how these might be efficiently and effectively handled. This would help prevent disorderly, inconsistent and inefficient outcomes for consumers making complaints, motor finance firms and the market.

The two lenders involved in the cases intend to appeal. Therefore, the proposed complaint extension will cover at least the period until the Supreme Court decides whether to grant permission to appeal.

The FCA will write to the Supreme Court asking it to decide quickly whether it will give permission to appeal and, if it does, to consider it as soon as possible, given the potential impact of any judgment on the market and the consumers who rely on it. If permission to appeal is granted, the FCA will consider intervening to share its expertise to assist the Court.

Motor finance firms will need to use the time provided to ensure they have the resources to issue final responses to complaints at the end of a proposed extension. They also need to consider whether they should make any financial provisions as complaints need to be handled in line with the law. 

The FCA is consulting on two options for extending the time firms have to provide final responses to motor finance complaints involving a non-discretionary commission arrangement:

• Until 31 May 2025, reflecting how long it may take to hear whether the Supreme Court has granted permission to appeal. The FCA plans to set out its next steps on DCA complaints in May 2025. Subject to the outcome of any Supreme Court application, the FCA would update on motor finance non-DCA commission complaints at the same time.
• A longer extension until 4 December 2025, to align with the current rules for motor finance firms dealing with discretionary commission complaints.

Separately, the FCA has been reviewing historical DCAs in motor finance. The review seeks to understand if there was widespread misconduct related to DCAs before the 2021 ban, if consumers have lost out and, if so, the best way to make sure any compensation owed is received in an appropriate settlement in an orderly, consistent and efficient way.

The FCA is considering what impact the Court of Appeal’s judgment has on the review into historical DCAs in motor finance, including for both its timeline and scope. This will inevitably be heavily influenced by any decision of the Supreme Court to hear an appeal and, if it does so, its timelines. 

The House of Commons Treasury Select Committee has also published a letter it has received from the FCA regarding the Court of Appeal judgment.  The key points in the letter are:

• After the judgment, 11 firms paused motor lending while they made changes to comply with the judgment. Eight have now returned to lending and three firms switched to a zero-commission model in the short term. There has also been a material impact on some firms' share price and a credit rating agency has reported on the uncertain and potentially significant financial implications of the judgment.
• The FCA is concerned that there is a risk any changes made by firms to ensure they receive their customers' informed consent for commission in motor finance arrangements may not be implemented efficiently or consistently. The FCA is reviewing firms' approaches and will decide if it needs to give firms guidance.
• There is uncertainty about whether the judgment goes beyond motor finance. The FCA is considering whether it would be helpful for it to publish its opinion to help firms navigate uncertainty, although the courts will have the final say.

The consultation ends on 5 December 2024.