Court sides with consumers in auto finance lawsuits against Close Brothers and Firstrand

In a landmark decision in the car finance test case, a court has come down strongly on the side of consumers against banks and lenders, including Close Brothers.

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

The court ruled that to obtain consent, the consumer would need to be informed of all material facts that could affect his or her decision, including the amount of the commission and how it would be calculated.

The judges ruled that did not happen in any of these cases.

Three cases were merged earlier this year: the Hopcraft case is against merchant banking group Close Brothers, Wrench is against South African Firstrand Bank and Johnson is against Firstrand Bank and Motonovo Finance.

The claims come from regional courts in England; The case against Close Brothers was dismissed by the Kingston-upon-Hull Combined Court last year, while the other two are appealing county court decisions.

All three cases were given the green light in March to appeal the decisions of their respective courts, and all proceeded to trial in the Court of Appeals in July.

Today, the court revealed that it unanimously accepted all three appeals.

The background of this test case

Earlier this year, the Financial Conduct Authority (FCA) revealed that it would review historical auto finance commission arrangements and sales of various companies.

The FCA has since confirmed it would examine arrangements made between April 2007, when the Financial Ombudsman Service began monitoring discretionary commission arrangements, and January 2021, when the practice was banned.

The auto finance industry has been bracing for potential compensation fees linked to this review in discretionary commission deals.

Lloyds, owner of the country’s largest car lender, Black Horse, made a £450m provision in February, while in March, Close, considerate brothers The most exposed bank in relative terms outlined plans to shore up its finances by £400m in response to the investigation.

The reaction to the innovative decision

close brothers informed its shareholders that “does not agree with the court’s expansion of existing jurisprudence in this area.” The merchant bank said it would appeal this decision to the UK Supreme Court.

The bank noted that the financial impact of the Hopcraft case in isolation is not material for the Group.

However, subject to appeal to the Supreme Court, the ruling may set a precedent for similar lawsuits, which may (depending on the specific facts of those cases) result in significant liabilities for the group.

Close Brother’s added that it is therefore not currently possible to assess the timing, extent or magnitude of any potential financial impact on the group.

Meanwhile, Kavon Hussain, director of Consumer Rights Solicitors, which brought the case to the Court of Appeal, said: “Unbeknownst to customers, lenders systematically incentivized car dealers acting as credit intermediaries to provide them with finance. through the payment of commissions that were not revealed to the consumer.”

“These hidden fees paid to dealers meant that the consumer could pay anything from a few hundred pounds to many thousands of dollars extra to a lender through interest payments, for the lender to then pay this back to the dealer,” he added.