You would have to have your head buried very deep in the sand, if you are in our industry, not to have heard about the landmark decision in The Court of Appeal in the case of Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd. [2024] EWCA Civ 1282. With the hearing of the case in the Supreme Court next week (scheduled for 01-03 April 2025), it should not be long before the industry has a final decision on the matter.
As we all know, The Court of Appeal’s ruling in the Johnson case ruled that motor finance firms might be liable whenever commissions were not adequately disclosed to customers. If the Supreme Court upholds that stance, the Financial Conduct Authority (“FCA”) has announced that it is considering implementing a redress scheme.
What is this potential “redress scheme” the FCA is on about?
Whilst the details are yet to be decided, a redress scheme would likely: –
· provide a structure to identify if, and when, commission was either received by the dealer in breach of FCA regulations or a dealer’s obligations as interpreted by Johnson.
· prescribe the compensation any affected customer would be entitled to.
· It may also place an onus on motor finance firms and dealers to proactively identify affected consumers and provide compensation according to FCA-prescribed rules.
This structured approach has the potential to dramatically simplify the process for consumers and businesses, eliminate reliance on claims management companies and courts, and reduce the burden to business of legal costs and fees. However, it could also increase the ease of making a claim, the likelihood that a claim succeeds, the administrative burdens on firms when investigating a claim and accelerate when liabilities will be felt by the industry.
While motor finance providers will likely shoulder most of the load under a redress scheme, dealerships are not immune. Given their central role in commission disclosures and finance arrangements, dealerships could face significant pressure, particularly if finance providers attempt to recover losses or seek indemnities. We are therefore urging all our dealership clients to rigorously audit not only their ongoing finance practices, but their historical practices in order to be best prepared for what could be a turbulent Summer and Autumn.
In Conclusion
The impact of such a scheme will depend mainly on the interpretation placed on the decision of the Supreme Court by the FCA. Where the scheme follows a strict interpretation of the decision, then there would be significant simplification of the complaints that motor dealers are likely to receive and the processes that would have to be put in place. However, where
the FCA implement a wider interpretation designed to protect consumers, this will not only increase the likelihood of successful complaints but also the financial burden of each.
Of course, it’s also possible that a redress scheme will not be required at all – we will not know until at least six weeks after the Supreme Court’s ruling, due in late Spring.
Until then, we will continue to monitor and report on the subject, and remember, as an RMI member you have access to the RMI Legal advice line, as well as several industry experts for your assistance. Should you have any questions, contact us at any stage for advice and assistance as appropriate.
Motor Industry Legal Services
Motor Industry Legal Services provides fully comprehensive legal advice and representation to UK motor retailers for one annual fee. It is the only law firm in the UK which specialises in motor law and motor trade law. MILS currently advises over 1,000 individual businesses within the sector as well as the Retail Motor Industry Federation (RMI) and its members.
