Car commission refunds – can more people get refunds?

On 13 November 2024, the Financial Conduct Authority (FCA) announced:

The FCA will consult on extending the time firms have to respond to consumer complaints about motor finance where a non-discretionary commission was involved, and for consumers to refer them to the Financial Ombudsman Service. 

This is a very rapid consultation for the FCA. It follows a recent Court of Appeal judgment in late October (Hopcraft v Close Brothers Ltd, Johnson and Wrench v Firstrand Bank Ltd (trading as Motonovo).  That judgment covered three appeals about car finance commission. In all three cases, the Appeal Court found for the consumer and said that the car finance company is liable to refund the commission charged.

I am going to look at why this judgment is important and what may happen next.

What happened before this court judgment?

Key commission decisions by the Ombudsman

The FCA banned Discretionary Commission Arrangements (“discretionary commission”, also called “DCA”) for motor vehicles in January 2021. These arrangements were commonly used for HP and PCP car finance. They allowed the broker to set the interest rate and get more commission the higher the interest rate was. The FCA banned them because they created an incentive to set higher interest rates.

After this ban, complaints started to be made by consumers saying they had been charged an unfairly high interest rate. By January 2024, the Financial Ombudsman (FOS) had received thousands of these complaints that had been rejected by the lender, and various court cases were in progress.

FOS issued three key decisions in January. Two of them involved discretionary commission – FOS upheld these complaints saying the commission was unfair and that the lender should refund the commission paid. In the third one, the commission charged was a flat fee related to the car model – FOS decided this was not unfair and no refund should be paid.

FCA paused discretionary commission complaints in January

After these key FOS complaints, the FCA was worried that lenders and FOS would not be able to cope with possibly hundreds of thousands of complaints so it brought in a pause to handling complaints about discretionary commission on motor finance.

This pause gave lenders longer to reply to consumer complaints and allowed consumers to delay sending cases to the Ombudsman.

Initially, the FCA planned to publish a review of the market, setting out a way forward in September 2024. But one of the FOS decisions has been taken to court for a judicial review and there are other court cases in progress. So the FCA decided to postpone its review until May 2025, with the pause on complaint handling being extended to December 2025.

The FCA explained:

The extended pause allows us time, if necessary, to introduce an alternative way of dealing with DCA complaints, such as a consumer redress scheme. It is too early to say if we will intervene in this way, but based on our work so far, it is more likely than when we started our review.

Consumers started asking about commission

After the January pause was announced, consumers started asking their lenders if there was any discretionary commission paid on their car finance which started before the end of January 2021. The MSE tool that generates an email to lenders has been used more than 2 million times.

Some lenders swiftly announced that they had never paid discretionary commission.

With other lenders, the range of responses varied from ‘Yes, there was discretionary commission’, through ‘We are still looking/can’t find your agreement’, to ‘No, there was no discretionary commission’.

Consumers who were told there was no discretionary commission have been advised it’s unlikely they have a good claim, as the FOS key decision on a fixed fee was not upheld.

Consumers who have been told discretionary commission was paid are now waiting for the FCA review, as there is no point in sending these cases to the Ombudsman at the moment.

The appeal court judgment

All commissions not just discretionary commission

October’s judgment is important because the three cases covered fixed commissions as well as discretionary commission. The decisions reached were broadly similar in all three cases and did not turn around whether the commission was fixed or discretionary

In one case, the consumer was not told that any commission might be payable.  In the other two, there was a reference in the Terms & Conditions that commission may be paid, but the court decided “the prospect that the borrower would read those terms was negligible”.

The FCA summarises this as:

the Court of Appeal decided it was unlawful for the brokers (car dealers) to receive a commission from the lender providing motor finance without obtaining the customer’s informed consent to the payment. This required the consumer to be told all material facts, including the amount of the commission and how it was to be calculated.

A much broader set of cases than the current FCA pause covers?

If this is upheld in the Supreme Court, then a much broader set of cases may be able to claim a refund:

• finance agreements where the consumer asked and was been told no discretionary commission was paid;
• finance agreements from lenders who announced that they never paid discretionary commission;
• finance agreements that started after January 2021, which have so far been ruled out as discretionary commission was banned after then;
• agreements where there was no motor involved. The FCA’s ban on discretionary commission only applied to motor vehicles (I have no idea why) so finance agreements on caravans were not covered;
• car leasing agreements, if these carried commission.

But… what will the Supreme Court say?

The two lenders in the October judgment have each announced they intend to appeal it to the Supreme Court.

Everyone involved in the market would like this to be heard as soon as possible. The FCA says:

The FCA will write to the Supreme Court asking it to decide quickly whether it will give permission to appeal and, if it does, to consider it as soon as possible, given the potential impact of any judgment on the market and the consumers who rely on it. If permission to appeal is granted, the FCA will consider intervening to share its expertise to assist the Court.

An appeal to the Supreme Court could go in almost any direction – upholding the recent decisions in all three cases, rejecting it in all three cases, upholding part of it, providing more general guidance that will apply to other cases, etc.

What happens next?

We are currently in a state of limbo. Until the Supreme Court decision is known, it’s not possible to say how many more people may have good claims. And the judgment in the judicial review of one of the FOS key decisions is also awaited.

The FCA will consult about extending the current pause on discretionary commission complaints to also cover complaints about motor finance where a non-discretionary commission was involved. The proposals are expected to be published within two weeks and will include options on the length of the proposed extension.

So far as I can tell, everyone – from consumer representatives to the lenders –  thinks this a good idea, so the extended pause is likely to be in place by mid-December 2024.

What should consumers do now?

What sort of commission was paid on your finance?

If you have already asked your lender and been told there was discretionary commission:

• there is nothing you need to do now;
• this Appeal Court ruling has made your case stronger;
• the current pause means there is no point in sending your complaint to the Ombudsman;
• you need to wait until the FCA publishes its review which may include a formal redress scheme that means there is no need to go to the Ombudsman.

If you were told there is no discretionary commission:

• it’s probably a good idea to ask again to find out how much fixed commission you paid;
• the free MSE tool should be expanded sson to cover the new groups of people who may be able to complain. I suggest you wait for that to be updated.

If you haven’t yet asked your lender:

• use the MSE free complaints tool when it has been updated. You need to know the answer to this.

“Would it be quicker to use a firm of solicitors?”

All court cases are likely to be on hold at the moment waiting for the Supreme Court decision!

The fees for this route can be extremely high. I saw an example of a consumer whose PPI claim was too late to go to the Ombudsman, so court was the only option. After their case was settled, from a refund of £1,706, they received only £441 – about three-quarters of their refund was taken in fees and other deductions for costs.

So I don’t think this is a good idea when the FCA may well come up with a simple option that you don’t have to pay any fees for.