Toby Poston, BVRLA Chief Executive comments: Much of the motor finance industry’s attention rests on Lord Reed, Lord Hodge, Lord Lloyd-Jones, Lord Briggs and Lord Hamblen this week.
They are presiding in the landmark Supreme Court hearing of the appeal against last October’s bombshell Court of Appeal judgement, which ruled that many motor finance commissions were unlawful.
The Court is considering five issues in its three-day hearing. These issues concern whether
- car dealers owe consumers a fiduciary and/or disinterested duty to act in the best interests of their customers when arranging motor finance loans.
- lenders paying commissions to car dealers for arranging motor finance are liable for their breaches of fiduciary duty, including failing to fully disclose the size and nature of a commission.
- lenders can be liable for bribery in relation to these cases;
- there was sufficient disclosure of commission payments to negate secrecy; and
- insufficient disclosure of commission payments is sufficient to make the relationship between the lender and consumer unfair under the CCA1974.
Although the specific cases involved in the hearing all relate to credit agreements, the original Court of Appeal judgement caused reverberations across motor finance leasing (personal and business contract hire) and other forms of consumer lending involving intermediaries.
The Treasury was so concerned about the risk of fallout from the ruling that it made an unsuccessful attempt to intervene in the Supreme Court, while the Financial Conduct Authority (FCA) will be participating in this week’s case to share its views.
It is hoped that the Court will provide much needed legal clarity and relief to the motor finance sector when it issues its ruling expected in early Summer.
Following the Supreme Court’s ruling, the FCA is likely to introduce an industry-wide redress scheme to manage the way funders compensate customers that were ‘mis-sold’ car finance. It could also consider changing its rules.
The BVRLA is closely monitoring this week’s hearing. We will aim to respond quickly to the subsequent judgement, helping members to understand and respond to any read-across for the vehicle leasing sector.
Commissions is just one area in which the vehicle rental and leasing sector is coming under greater regulatory scrutiny and pressure.
The Government recently consulted on the regulatory framework that protects consumers entering subscription contracts – which includes cooling-off cancellation rights, refunds and arrangements for exiting contracts. This new regime comes into place next year.
Meanwhile, the Government has also begun work reforming the Consumer Credit Act, a process which is likely to see it reviewing the regulatory landscape as it applies to short-and long-term vehicle rental and motor finance.
Your association will continue to keep you up-to-date with all key regulatory developments via our member communications and guidance. You may also want to consider signing up for our Compliance Forum, which brings members together to share knowledge, get expert insights and review the impacts of changing regulations.
Above all, I would like to reassure you that the BVRLA continues to work relentlessly to deliver a regulatory environment that enables you to both grow your business and continue looking after your customers.
