I really do wonder if the ramifications of this truly seismic judgment have really been understood.

Presently, the Court of Appeal judgment handed down on 25 October 2024 in Johnson v Firstrand Bank Ltd, Wrench v Firstrand Bank Ltd and Hopcraft v Close Brothers Ltd potentially impacts all intermediary/broker-led businesses or products, be it B2C or even B2B where any remuneration, be it commission in its narrowest sense, other fees, linked-payments, volume bonuses are concerned etc etc, for both regulated and unregulated services or products, and where the customer is not told the amount nor explicitly consents to it.

Yes, you’ve got it, that means, your TV on finance, your sofa on finance, your holiday booked through a travel agent etc etc etc.

Unfortunately, there is lots in the judgment that needs to be grappled with and which is ripe for clarification.

Purely by way of example, the Court has based its decision on previous cases that are not easy to reconcile, not least how can the payment of a commission be secret if you tell a customer that it might be payable and it is in fact paid? Certainly, as far as regulated credit goes, the judgment also goes beyond even the FCA’s own rules. The Court has suggested lenders are dishonest by not checking what their brokers disclose, and, in a shock to anyone involved in interacting with brokers, has almost asked them to assume that any broker, regulated or not will breach their contractual, regulatory if applicable and fiduciary duties. The Court divided up two parts of the customer journey, the first being the sale of the vehicle itself (which does not attract a disinterested or fiduciary duty) and the second, the sale of the finance, which does. It went on to say that the customer does not know the broker is the dealership yet at the same time, is sufficiently savvy to appreciate the dealership is not acting in their best interests when selling the vehicle. Bizarrely, the Court found that the broker is the agent of the lender – nothing unusual about that, but it rather begs the question of how a broker can then be expected to act with single-minded loyalty to a customer when it is the agent of the lender on the opposite side of the transaction.

The Court also left some questions unanswered. How for example is a broker to know whether a customer is or is not sophisticated/vulnerable? How much enquiry is a broker required to undertake? Are they to ask individuals whether they have suffered a recent bereavement, or relationship breakdown that impairs their judgment?

At the other end of the scale, what level of disclosure is going to be considered sufficient for more sophisticated customers, particularly where touchpoints in B2B sales are wholly different from those in a B2C context?

The All-Party Parliamentary Group (APPG) for Investment Fraud & Fairer Financial Services last week, called the FCA at best “incompetent”.

If this judgment pulls up the socks in the short term of the less scrupulous, great; no one is advocating that any customer be mistreated.

But these 3 claimants/appellants were vulnerable, unsophisticated consumers. They bought their cars from small independent garages. None of them were large franchised car dealer groups. Yet, to tar everyone in the automotive industry and far beyond with the same brush, as this one-size-fits-all all judgment does, makes no discernible sense.

It is incoherent that such untold damage could now be done to this sector and beyond even where brokers have followed the FCA’s own rule book.

Smaller lenders and smaller dealers less able to absorb the cost, will go bust, meaning a smaller market and less competition. If lenders are forced to make substantial payouts for all transactions, finance will be more expensive and so the capital cost of the vehicle will have to be reduced to make the overall deal affordable.

And the very group of people the FCA is trying to protect, the majority of whom could not care less about this, will end up with less choice, less access and higher costs. Someone somewhere ultimately has to bear it and it will be the customer.

In times of economic turbulence, just imagine what will happen to inflation if millions of customers are suddenly all at once each entitled to typically £500-£1,000 for maybe each of 3-4 cars they each acquired on finance up to 2021.

And that is just DCA arrangements.

This judgment potentially catches non-DCA for who yet knows how far back the FCA would like to go.

The sooner permission is granted and the sooner an appeal is heard, the better.

Let’s hope that some sense prevails before the Supreme Court.

If you have any questions regarding anything mentioned in this article, please contact Jonathan Butler or the Geldards Automotive Team