CashNews.co
The Court of Appeal has sided with consumers against banks and lenders in a motor finance test case, ruling that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment.
Consumers who complained about ‘secret’ commissions on car loans, in a landmark ruling. Lawyers have warned that the motor finance industry could face a costly customer redress scheme after the Court of Appeal found that certain commissions lenders paid to car dealerships for arranging loans were unlawful.
The Court ruled that in order to consent, the consumer must be aware of all material facts that might affect their decision, including the amount of the commission and how it was calculated.
The legal proceedings, which focused on cases brought by consumers against MotoNovo Finance and Close Brothers, were being monitored by the Financial Conduct Authority, which is reviewing commissions in financing deals following a rise in consumer complaints.
Stephen Haddrill, Director General of the Finance & Leasing Association, said “This is a significant and unexpected judgment, the implications of which stretch far beyond the motor finance sector.”
Emma Deas, Partner at law firm Herbert Smith Freehills, said that while there were aspects of the Court of Appeal ruling that were specific to the facts of those particular cases it was considering, it still had “potentially significant implications for lender liability”.
“The court’s analysis in relation to potential liability for lenders in cases where there has been partial disclosure [of the payments to consumers] is of particular significance,” she said, adding this was “likely to be of concern to lenders who have been part of similar arrangements.”
