Here, we look at the key dates facing motor finance firms in 2025, which will be another tough year for the sector. We also look at how firms are being proactive in preparing their business operations for what lies ahead and highlight the support available.
Supreme Court Motor Commissions Hearing: 1st - 3rd April
This will set the tone for everything to follow as the Supreme Court hears the appeal made in three cases – Wrench v FirstRand Bank, Johnson v FirstRand Bank, and Hopcraft & Another v Close Brothers. The judgment previously handed down by the Court of Appeal in October found in favour of the claimants that commission payments had in one case been kept secret, and not been fully disclosed in the other two.
The Court of Appeal case also brought up the legal definition of where the responsibility around fiduciary duty lay in the chain of finance provision and included those providing it at point of sale. This definition goes beyond the regulatory framework that the sector currently operates under and, if upheld further by the Supreme Court, represents a fundamental change and major challenge to how motor finance is provided. The importance of this case is underscored by the input of not just the FCA and FLA into the hearing, but also an unusual intervention by the Chancellor.
The fact that this appeal is being heard so quickly by the Supreme Court is good news for the motor finance, and wider finance industry as it will provide clarity of action for the future. However, there is not yet a confirmed timeline for when the judgment will be announced.
The FCA to set out results of DCA & Other Commission Investigation: May
Since January 2024 the FCA have been consulting on and investigating historical motor finance commission arrangements. What started with Discretionary Commission Arrangements (DCA), widened out to all commission disclosures following the above and other Court cases. Currently, the result of these investigations, stating what approach the industry should be taking to resolve customer complaints, is scheduled for May. However, considering the Supreme Court hearing, this could be delayed allowing the FCA more time to incorporate the Court’s judgment into their approach.
Given the importance of a healthy motor finance sector, as well as finance options beyond motor, the FCA will be keen to resolve these challenges and adapt to any changes in as orderly way as possible. This is necessary to ensure the Motor Finance Sector can operate effectively and competitively for consumers, as it is such an integral part in our financial systems and ensuring consumers can continue to purchase vehicles. This is one of the reasons why an extension to the usual complaints handling deadline has been given, both to gain the clarity the Court and FCA need to give the sector, and to give firms time to become operationally ready, preparing their data, processes, systems and resources to manage the resolutions and redress appropriately.
How firms are preparing
Financially
In April 2024, the FCA issued a reminder to all motor finance firms, reiterating their need to “maintain adequate financial resources at all times.” The reminder was a direct result of their already underway investigation into DCA complaints and highlighted both the costs of handling additional complaints as well as paying redress, areas where firms needed to allocate resources.
This is one example where the FCA must ensure it balances two of its key objectives carefully - the need to maintain healthy financial markets that function well, alongside the responsibility to ensure that consumers are treated fairly. These dual purposes are at the forefront of how it is dealing with its own investigation into commission payments and disclosures, as well as incorporating the judgments handed down by the Courts.
Operationally
Motor Finance firms are making several operational preparations in anticipation of the Court rulings and FCA findings.
Data collation – Identifying the cohorts of affected customers and gathering all the information concerning their original deals.
Customer outcomes – Working through the treatment strategies for the different customer cohorts for example, open accounts, closed accounts, those in arrears, anyone with an IVA, deceased and then considering which commission arrangement, was it DCA, no commission, fixed commission.
Policy and agreement updates – Changes in the way commissions have been communicated have already been implemented for new agreements. Any further adjustments require clarity from both the Courts and the FCA.
DSAR captures – To minimise duplication of requests from different CMCs for the same consumer.
Resourcing and training – Firms are currently adapting their customer-facing workforce to accommodate the increase in complaints volumes to ensure customers are supported in a timely manner.
Process and technology – In anticipation of the redress programme, firms are introducing dedicated systems and processes to manage these cases quickly, efficiently and in keeping the FCA guidance.
Find out more
Collaboratively, EQ is supporting motor firms with all aspects of their operational preparations with dedicated motor finance experts and technology. Find out more about our work in motor finance and get in touch to discuss how we can help.