The Judgement

On October 25th 2024 the Court of Appeal handed down its Judgement in the cases of Johnson, Wrench and Hopcroft. These decisions, relating to motor finance commission, had been long awaited and found in the favour of the customer against their lenders. The decisions were completely unexpected and pose significant challenges across not only the Motor Industry but also the wider Asset Finance market and beyond.

The Judgement changed the interpretation of law to date, effectively meaning that compliance with the FCA regulations has been insufficient to comply with the law. The Court of Appeal concluded that introducers owe customers a fiduciary duty and as such must disclose the amount and nature of any commission payments received, but also obtain informed customer consent to the payment being made. While there is a responsibility on the introducer to obtain this consent, the lender is also liable if it is not obtained.

Changes Going Forward

It was clear once the Judgement was handed down, that current processes across the industry did not comply with the law, as determined by the Court of Appeal. With immediate effect on Saturday 26th October 2024, Startline implemented an informed consent form to be completed and signed by all customers, detailing the nature and amount of commission paid by Startline, and providing informed consent to the payment. No deals have been paid out without consent since this point. On Tuesday 29th October, system updates were put in place which moved the consent form into the Startline e-sign journey to provide a seamless customer experience. The consent and disclosure have been reviewed by Startline’s external legal counsel.

Throughout this period, Startline has been in regular contact with all introducers to update on these changes and to understand changes being implemented in their processes. It is clear that Startline were able to move faster than the rest of the market and have led in the response to become compliant with the Judgement immediately.

Back Book Implications

It is important to note that the conclusions of the Judgement are contrary to the legal opinion, analysis undertaken across the industry to date and, not least, the FCAs regulatory framework. This link provides a useful summary by one of the chambers involved in the case Court of Appeal hands down decision in Johnson, Wrench and Hopcraft | Gough Square Chambers

Of particular interest, the Court of Appeal did not address a precedent from a higher court (the House of Lords) which states that a dealer “is acting primarily as a party in his own right and not as a general agent for either of the other two parties” in direct contradiction of the conclusions of the Court of Appeal. Additionally, the Court of Appeal, unusually, in their Judgement note their difficulty in reconciling applicable case law and suggested the case could be reviewed in greater depth by the Supreme Court to reach a definitive position.

The Defendants are seeking leave to appeal to the Supreme Court which is considered likely to be granted. Even on an expedited basis this could take 12 months.

Given the potential impacts across the motor finance sector (lenders, dealers and brokers), the wider finance markets and indeed affects to UK wide investment, the FCA and HM Treasury are actively engaged in this matter. Startline remain close to developments across the industry and through our trade body, the Finance and Leasing Association (FLA). Until these next steps are clear it is not possible to understand the final impacts.

Summary

Startline has taken immediate action to ensure legal compliance as concluded by the Court of Appeal on October 25th 2024. The business remains actively engaged through industry, trade body and legal networks to keep pace with events as they develop.

Startline Motor Finance Ltd

1st November 2024