Motor and motorcycle finance lenders will have to wait until July for the Supreme Court verdict on apparently hidden dealer commissions that might potentially cost them squillions and push point-of-sale funding into jeopardy.
The story so far began with a High Court (Court of Appeal) ruling last November that it was unlawful for lenders to pay commissions to dealerships without ensuring customers had given their informed consent. The case had been drafted by lawyers acting for several aggrieved punters who had bought second-hand cars via funding from Close Brothers and MotoNovo Finance without realising that associated dealer commissions had been hidden.
The UK Treasury and Chancellor of the Exchequer Rachel Reeves had tried to intervene with a referral to the Supreme Court on the basis of a threatened collapse to the whole vehicle finance edifice but were blocked. So a Supreme Court hearing was initiated at the beginning of April.
This kicked off with the Financial Conduct Authority (FCA) regulator opining that the original appeal’s landmark ruling went too far in determining that dealerships had a fiduciary duty to act in the interests of their customers. But the FCA also said judges should exercise a degree of caution before accepting the arguments by lender banks that they were not covered by bribery law banning the payment of concealed commissions or bound by dealers’ duty to act in a “disinterested way”.
As the three-day Supreme Court case swung into action, it heard from senior lawyers acting for MotoNovo parent FirstRand Bank and Close Brothers, as well as submissions from the National Franchised Dealers Association. Pretty much everything pivoted around obtuse interpretations of “fiduciary duties”.
Should the Supreme Court choose to uphold the initial Court of Appeal judgment, the FCA has said it is likely to impose an industry-wide redress scheme to compensate motor (and motorcycle) finance customers once the outcome is clear. Many exposed lenders in the sector, including Lloyds Black Horse and Santander, have already set aside huge sums to cover any resultant liabilities.