High Court Motor Finance Ruling: What It Means for Consumers & Lenders

The recent High Court decision on motor finance commission arrangements marks a pivotal moment for both consumers and the motor finance industry.

On December 17, 2024, the High Court ruled in favor of the Financial Ombudsman Service (FOS), dismissing all three grounds of appeal brought by Barclays Partner Finance. The court found that both the lender and the car dealer failed to meet the required standards by not adequately disclosing their commission arrangements to the borrower, leading to an unfair relationship under the Consumer Credit Act 1974. 

This judgment underscores the importance of transparency in financial dealings, particularly concerning discretionary commission arrangements (DCAs). The Financial Conduct Authority (FCA) had previously banned DCAs in 2021 due to concerns that they incentivized brokers to increase interest rates for higher commissions, often without the consumer’s knowledge. 

In response to the ruling, the FCA has expressed its support for the clarity it brings to consumer complaints involving DCAs. The regulator is currently reviewing the historical use of DCAs in the motor finance market to determine if there was widespread misconduct and to assess any potential consumer detriment. Depending on the findings, the FCA may implement measures to ensure appropriate compensation for affected consumers. 

The implications of this decision are far-reaching. Several financial institutions have already set aside substantial provisions in anticipation of potential compensation claims. For instance, Barclays has allocated £90 million, while Lloyds Banking Group and Santander UK have reserved £450 million and £295 million, respectively, to address potential liabilities arising from undisclosed motor finance commissions. 

As the situation evolves, the FCA has extended the timeframe for motor finance firms to respond to complaints related to non-discretionary commission arrangements. This extension aims to prevent disorderly, inconsistent, and inefficient outcomes for consumers and firms alike. 

For consumers who believe they may have been affected by undisclosed commission arrangements, it is advisable to review their motor finance agreements and seek professional advice if necessary. Transparency and fairness are fundamental principles in financial transactions, and this ruling reinforces the industry’s obligation to uphold these standards.

At ICC Asset Finance, we are committed to providing our clients with clear and transparent information regarding all financial arrangements. We welcome this development as a positive step toward greater accountability and consumer protection in the motor finance sector.