25 October 2024

The Court of Appeal has unexpectedly allowed all three appeals against Discretionary Commission Arrangement (DCA) claims that were previously dismissed by regional courts around England.

Three cases were merged into one appeal earlier this year, against Close Brothers and Firstrand Bank.

The Court of Appeal has ruled that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent.

This would involve informing customers about all material factors, including the amount of commission and how it was to be calculated.

Judges ruled this did not happen in any of the cases.

Close Brothers has already said that it “disagrees with the court’s extension of the existing case law in this area” and will appeal to the UK Supreme Court.

It also said it would temporarily pause the writing of new UK motor finance business “while we review and implement any relevant changes to our documentation and processes to ensure compliance with these new requirements”.

Stephen Haddrill, director general of the FLA, called it a “significant and unexpected judgement, the implications of which stretch far beyond the motor finance sector, making it an issue that demands the immediate attention of the Financial Conduct Authority (FCA)”.

FCA ‘carefully considering’ decision

The FCA said that “we note the Court of Appeal judgment on motor finance commission and are carefully considering its decision.

“In January, we introduced a pause to the time firms have to provide a final response to customers about motor finance complaints involving a discretionary commission arrangement (DCA).

“We did this to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we review whether motor finance customers have been overcharged because of the past use of DCAs.

“In September, we extended the pause, in part, so we could account for the outcome of legal cases that may be relevant to our review.

“We note the Court of Appeal judgment on 25 October 2024, in Johnson v Firstrand Bank Ltd, Wrench v Firstrand Bank Ltd and Hopcraft v Close Brothers Ltd, and are carefully considering its decision.”

Tags: DCA, FCA, FLA