Plenty of other lawyers and commentators have written about the Court of Appeal’s judgment in three recent motor finance cases (Johnson, Wrench and Hopcraft)[1] relating to commissions paid by the lenders to car dealers who acted as credit brokers. Apart from some brief points, I’m going to look at some of the implications of the Court’s judgment for complaints handling by firms and in the context of the Financial Conduct Authority’s recent decision to extend the time firms have to deal with motor finance complaints where non-discretionary commission was involved[2]. Please note that this article isn’t a full analysis of either the Court of Appeal’s judgment or complaints handling following the judgment.
To begin, some high-level observations on the judgment.
- The judgment sets out decisions made through the court process about points of law. It isn’t about regulatory rules and guidance and the FCA can’t alter the decisions through its rules and guidance or introduce regulatory requirements that run counter to the decisions. This is one of those instances where law and regulation cover similar ground but decisions are made by the courts by reference to case law (and, in relation to one of the points considered in the judgment, legislation).
- The Supreme Court has agreed to hear the lenders’ appeal but this will take some time. Even though this is expected to be fast-tracked, the appeal process is likely to run well into 2025 and the Court of Appeal’s judgment applies until the Supreme Court gives its judgment.
- The principles of the Court of Appeal’s judgment would appear to apply to other broker and intermediary relationships beyond the motor finance sector but the full extent of any potential application is unclear. That might still be the case after the Supreme Court has given judgment.
- It also seems that commission payments where the broker (as seller of goods or provider of services) makes money from a primary transaction are more likely to fall within the scope of the Court of Appeal’s judgment than commission payments where there’s no related transaction and no fee payable by the customer (e.g. where home and contents insurance is arranged by a broker and it would be reasonable for the customer to expect the broker will be paid in some form other than a fee). It is, though, difficult to reach a definitive view on the point.
- It appears that greater levels of disclosure are needed in relation to commission payments where a customer is unsophisticated and/or vulnerable. That will be particularly relevant to those operating in the sub-prime and near-prime markets but the particular customer’s needs also appear to be important.
These points provide context when considering complaints handling.
1 The FCA has decided to:
- Extend the time firms have to provide a final response to motor-finance agreements that don’t involve discretionary commission arrangements (referred to as non-DCA commission complaints) until after 4 December 2025; and
- Give consumers who receive a final response to complaints until the later of 15 months from when the final response is sent and 29 July 2026 to decide whether to refer their complaint to the Financial Ombudsman.
Suspension to 4 December 2025 is in line with current rules for firms dealing with motor finance discretionary commission arrangements (DCA) complaints. It is also expected that the Supreme Court’s judgment will have been received by then in the Johnson, Wrench and Hopcraft appeal.
2 On one analysis, the FCA is allowing firms to wait until the Supreme Court’s decision before responding to complaints. However:
- The FCA appears to be most concerned that firms will be inundated with complaints from consumers and won’t have the capacity to carry out a full investigation and issue an appropriate final response letter within the usual eight-week period.
- This gives rise to a related concern that there will be a higher referral rate to the Financial Ombudsman Service if investigation and final response letters were rushed and might not be adequate.
- The FCA has also reminded firms that they should continue to progress complaints cases during the suspension period.
3 The proposed suspension only applies to motor finance commission complaints although the FCA’s General Counsel and Chief Risk Officer noted in his letter of 2 December 2024 to the Registrar of the Supreme Court regarding the request to appeal the Court of Appeal’s decision that: “There may also be wider implications for other financial services markets regulated by the FCA that involve intermediary arrangements.”
4 Firms dealing with motor finance non-DCA commission complaints will need to decide what to do during the suspension period. Complaints will need to be recorded, acknowledged and so forth and investigations will need to be carried out having regard to the principles in Hopcraft, Wrench and Johnson. Firms will need to decide whether to issue final response letters before the Supreme Court gives judgment and the rationale for the approach taken should be recorded in writing. It will also be important to identify which complaints relate, wholly or in part, to non-DMC commission payments. Waters are likely to be muddied by commission payments being added to complaints about other matters and firms will need to decide how to assess, investigate and deal with those, which parts of a complaint fall outside the scope of the extension period, whether they can properly respond to all aspects of a complaint and how to explain to complainants what has been done and why.
5 Firms outside the motor finance sector will also need to decide the extent to which the Court of Appeal’s decisions are relevant to their business and whether (and how) they’ll apply the principles of the judgment in handling complaints. A rationale for the firm’s approach should be recorded in writing and decisions about the approach might extend to recording complaints relating to commission payments (including where the commission complaint is an additional complaint), investigation of commission complaints and responses to complainants.
6 If the Supreme Court were to overturn any part of Hopcraft, Wrench and Johnson, there’s the prospect of firms outside the motor finance sector (and the FCA’s complaints handling extension period) having applied the principles of the Court of Appeal’s judgment when determining a complaint, whereas motor finance firms will have greater scope to wait and see the outcome of the Supreme Court’s decision. There could also be situations where decisions in relation to non-motor finance commission complaints set a precedent for complaints handled by a firm even if the Supreme Court overturns parts of the Court of Appeal’s judgment. Firms will need to take great care in drafting their communications with complainants, particularly final response letters.
7 It’s unclear whether the Financial Ombudsman will follow the Court of Appeal’s judgment in Hopcraft, Wrench and Johnson – in full or at all; in motor finance cases or more generally – and how its decisions might need to be taken into account by firms when considering complaints.
Legal clarity is needed, urgently, for firms, consumers and the wider market. Unfortunately, it seems that it will take some time to achieve that.
[1] Hopcraft, Wrench and Johnson [2024] EWCA Civ 1282.
[2] Policy Statement PS24/18: Further Temporary changes to handling rules for motor finance complaints.
This article is intended to provide general information about current and expected topics and perspectives that might be of interest. It does not provide or constitute, or purport to provide or constitute, advice relevant to any particular circumstances. Legal or other professional advice relevant to any particular circumstances should always be sought.