Court Rules Against Close Brothers in Motor Finance Commission Case
The Court of Appeal recently made a groundbreaking decision in favor of consumers in a significant case against Close Brothers and other motor finance lenders. This landmark ruling addresses the legality of commission payments made to brokers without the full and informed consent of customers. At the heart of this decision is a principle that finance brokers have a duty to act in the best interest of the consumer. This judgment underscores that brokers must disclose all relevant facts to customers, including the commission amounts and their methods of calculation, ensuring transparency in consumer finance agreements.
In this case, multiple claims were merged, representing consumers who unknowingly paid higher interest rates due to undisclosed commissions. Cases included in this appeal were brought against Close Brothers, FirstRand, and MotoNovo Finance. Initially dismissed in lower courts, the cases were later allowed to proceed to appeal in March. The Court of Appeal's recent decision affirms the consumer claims, setting a strong precedent that may influence similar cases across the industry.
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This ruling reflects the Financial Conduct Authority's (FCA) increasing scrutiny of commission practices in motor finance. Earlier this year, the FCA initiated a review of past commission arrangements, especially those set up before January 2021, when discretionary commission payments were banned. The review encompasses deals from as far back as 2007, when the Financial Ombudsman Service began overseeing commission structures. Financial institutions have been preparing for potential repercussions, with Lloyds, for example, reserving £450 million in February to address possible compensation claims, while Close Brothers allocated £400 million as it braces for outcomes of the ongoing probe.
Close Brothers responded to the ruling with disappointment, signaling its intention to appeal the decision to the UK Supreme Court. The bank expressed concern that this ruling extends existing laws, potentially leading to substantial liabilities if the judgment becomes precedent for future cases. While Close Brothers asserts that the immediate financial impact of this particular ruling is not substantial, it acknowledges the broader implications if the ruling influences additional claims.
Consumer advocates, however, see this as a victory for transparency. Kavon Hussain, the solicitor representing the claimants, emphasized that hidden commissions have often led consumers to unknowingly pay excessive interest, enriching brokers and lenders at their expense. Many customers, he explained, were left in the dark, paying thousands in extra interest due to commissions that were never disclosed.
The ruling has sent ripples through the finance industry. Stephen Haddrill, Director General of the Finance and Leasing Association, pointed out that the decision’s significance stretches beyond motor finance, urging the FCA to take swift action in response. This ruling underlines the industry-wide impact of non-disclosure and consumer rights, emphasizing the urgent need for clarity and fairness in all consumer finance practices.
As this case progresses, it is expected that the motor finance industry will face further scrutiny and potential reforms, with the possibility of compensation for affected consumers. The ruling is a stark reminder to the finance sector of the paramount importance of transparency and fair practices in all consumer dealings.
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