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Court of Appeal ruling on finance commissions: What does it mean for car buyers?
The Court of Appeal’s decision could set a new legal standard for disclosure, with finance agreements requiring more transparency about commissions from here on out. Find out what it means for you.
Words by: Andrew Woodhouse
Additional words by: Auto Trader
Last updated on 5 December 2024 | 0 min read
In recent weeks, several motor finance companies paused underwriting new finance agreements after a Court of Appeal ruling decided companies need to disclose any commissions they earn on sales.
During this pause, finance companies reviewed their practices and updated them where necessary. Most finance lenders have now resumed business as usual and are underwriting new finance agreements, though we will keep this page updated with the latest news as we go.
During this pause, finance companies reviewed their practices and updated them where necessary. Most finance lenders have now resumed business as usual and are underwriting new finance agreements, though we will keep this page updated with the latest news as we go.
Summary: The Court of Appeal has ruled in favour of the consumer complaints, meaning lenders have to disclose any commissions made on a sale
Earlier this year, the Financial Conduct Authority (FCA) started investigating whether some car finance customers were charged too much through a Discretionary Commission Agreement (DCA). The details of this ongoing investigation are available here.
As a part of that investigation, three consumers have argued that the car dealers, acting as brokers, failed to disclose commission payments and that this affected the impartiality of the finance advice they gave. The Court of Appeal reviewed three cases and ruled in favour of the consumers who claimed they were mis-sold car finance, saying that “a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment”. The ruling emphasised that car dealers acting as credit brokers have a “fiduciary duty” – which means they have the legal responsibility to act solely in the best interest of another party – and to disclose any commissions received to their customers. This is a big ruling, and the Court of Appeal’s decision could set a new legal standard for disclosure, with finance agreements requiring more transparency around commissions from here on out. Following the ruling, several finance companies paused any new motor finance to review and adjust their documentation and compliance processes. Most are now offering new motor finance again, having updated their processes.
As a part of that investigation, three consumers have argued that the car dealers, acting as brokers, failed to disclose commission payments and that this affected the impartiality of the finance advice they gave. The Court of Appeal reviewed three cases and ruled in favour of the consumers who claimed they were mis-sold car finance, saying that “a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment”. The ruling emphasised that car dealers acting as credit brokers have a “fiduciary duty” – which means they have the legal responsibility to act solely in the best interest of another party – and to disclose any commissions received to their customers. This is a big ruling, and the Court of Appeal’s decision could set a new legal standard for disclosure, with finance agreements requiring more transparency around commissions from here on out. Following the ruling, several finance companies paused any new motor finance to review and adjust their documentation and compliance processes. Most are now offering new motor finance again, having updated their processes.
What does this mean for car buyers?
While lenders set up new processes and adjust their documentation, you may face delays:
• If you were expecting to collect a financed vehicle, you may have to wait if your lender has paused, as pay-outs on existing finance agreements have been suspended while new processes are put in place. • New motor finance deals may be paused while the industry adjusts to their new legal requirements, meaning you’ll have more limited options for the time being. Going forward, you may be asked to provide explicit informed consent for any commission payments associated with finance agreements. This means that you will be talked through any commission made on a sale, and be given the option to agree to it. Some providers have already introduced features for commission disclosure, which we will cover in due course.
• If you were expecting to collect a financed vehicle, you may have to wait if your lender has paused, as pay-outs on existing finance agreements have been suspended while new processes are put in place. • New motor finance deals may be paused while the industry adjusts to their new legal requirements, meaning you’ll have more limited options for the time being. Going forward, you may be asked to provide explicit informed consent for any commission payments associated with finance agreements. This means that you will be talked through any commission made on a sale, and be given the option to agree to it. Some providers have already introduced features for commission disclosure, which we will cover in due course.
I’m in the process of buying a car, what can I do?
Not all lenders paused, so first check whether you’ll be affected.
For those that are still paused, it isn’t yet clear how long the pause will go on for, so you should stay in contact with your retailer or lender for updates while they update their systems and processes. If you can wait until the lenders have fully implemented the required changes, this could help avoid delays or complications. You could also explore alternative finance options, such as personal finance or a different lender, but make sure you take the time to research this properly. Read the terms and conditions, and make sure you can afford the full payments – don’t pressure yourself into making a decision while things are uncertain. You can get free, impartial advice from MoneyHelper and Citizen’s Advice.
For those that are still paused, it isn’t yet clear how long the pause will go on for, so you should stay in contact with your retailer or lender for updates while they update their systems and processes. If you can wait until the lenders have fully implemented the required changes, this could help avoid delays or complications. You could also explore alternative finance options, such as personal finance or a different lender, but make sure you take the time to research this properly. Read the terms and conditions, and make sure you can afford the full payments – don’t pressure yourself into making a decision while things are uncertain. You can get free, impartial advice from MoneyHelper and Citizen’s Advice.
How are lenders responding?
Multiple lenders are reassessing their finance processes and reviewing compliance to ensure they meet the new legal requirements.
Some lenders are also planning to appeal the Court of Appeal’s decision to the UK Supreme Court. Other lenders will be updating their systems and processes to ensure they are compliant. Things might take a bit longer over the next few days, but if you can afford to stick with them, things should be resolved in the coming days and weeks.
Some lenders are also planning to appeal the Court of Appeal’s decision to the UK Supreme Court. Other lenders will be updating their systems and processes to ensure they are compliant. Things might take a bit longer over the next few days, but if you can afford to stick with them, things should be resolved in the coming days and weeks.
Despite any delays this ruling may cause in the short-term, the upside is that it will bring greater transparency to the automotive finance process from here on in; something we support and we know many lenders and finance providers have been working towards for a long time.