Car Finance Nightmare? Update on the Court of Appeal judgment

On 25 October 2024, the Court of Appeal handed down its judgment on three joined cases with similar facts. Together, the cases are being referred to as Marcus Gervase Johnson v Firstrand Bank Limited (London Branch) t/a Motonovo Finance [2024] EWCA Civ 1282. 

As a result of the judgment, lenders have been scrambling to get their ducks in a row. We know that this judgment may have affected your operations recently, leaving dealerships unable to complete sales and consumers without their new cars.

What is this case about?

Three separate individuals brought cases regarding the finance agreements used to purchase cars. The Court of Appeal looked at whether the individuals knew that the dealership received a commission from the lender, and whether the dealerships had a duty to notify the individuals that they were receiving a commission if the finance deal completed.

The Court of Appeal judgment confirms that there is a fiduciary relationship between the dealerships and the consumers. This places a high bar on dealerships and means that dealerships have a duty of care to notify purchasers that the dealership will make a commission from the finance agreement. In practice, this mirrors the obligation already placed on dealerships by the FCA rules. 

The Court of Appeal found that a statement that a commission will be paid to the dealership which is buried in the Terms and Conditions is not sufficient to notify the consumer of the commission arrangement. If the notification is buried in the Terms and Conditions, the lender may be liable. Therefore, the primary liability is on the lender to make sure that the Terms and Conditions clearly state that the lender will be giving the dealership a commission. That will be why many finance providers recalled any deals last week to make sure that their Terms and Conditions are compliant. 

What should you do now?

We expect that the lenders will appeal to the Supreme Court but in the meantime, the Court of Appeal judgment is binding. 

Following some additional press about motor finance agreements, you may receive complaints from consumers arising from the Court of Appeal judgment. However, this case was about finance agreements that pre-date the new FCA rules and therefore, you should continue to treat any new complaints in the same way as previous complaints of this nature. We can provide advice on a number of practical steps that dealerships can take to minimise the risks of consumers raising complaints arising from the Court of Appeal judgment. What is critically important is that steps are put into place now to avoid any further potential liability.