Supreme Court Delivers Commissions Verdict, FCA Reaction, And What Motor Firms Can Do Now

The Supreme Court Judgment and the FCA Consultation

The Supreme Court delivered a hugely helpful and clear verdict on Friday 1 August that brought much clarity to the sector around the responsibilities of a lender and a broker, and the key issues of fiduciary duty and tort of bribery. The judges decided that the brokers and lenders were acting in their own commercial interests and therefore the consumer could not expect a fiduciary duty owed to them. This made the points around tort of bribery moot and overturned the Court of Appeal’s interpretation.

The one area upheld by the Supreme Court was that the Johnson/FirstRand relationship was unfair under section 140A of the Consumer Credit Act. This was due to a variety of factors, including the amount of commission in relation to the size of the loan, and also the position of Mr Johnson as a “commercially unsophisticated” consumer. The Court ordered that Mr Johnson be paid the amount of the commission with appropriate interest added in compensation.

Hot on the heels of the Supreme Court’s decision was the announcement by the FCA on Sunday 3 August of a consultation of a compensation scheme for motor finance due to kick-off in October. Taking some in the sector by surprise in its scope, this consultation includes both discretionary (DCA) and non-discretionary commission models.

Although complaints with DCA were not the focus on the Supreme Court’s judgment, and have already been recognised by the FCA as a problem to be remediated, processing these complaints was on hold pending this judgment. Now, non-DCA commission complaints are brought back into play following the Court’s finding of an unfair relationship in the Johnson case. The challenge for the FCA, and the industry as a whole, is how to determine what classes as unfair when applied across the board given that the Court stated that their findings in the Johnson case was very facts specific.

What actions can motor finance firms take now?

While many in the industry are breathing a sigh of relief following the Supreme Court’s decision, many questions still remain, and the prospect of a compensation redress scheme that goes beyond DCAs is now confirmed by the FCA in their consultation.

With this the case, and with some further parameters highlighted by the FCA, including that claims could go as far back as 2007, there are several things that motor lenders can take forward with certainty to prepare for what the FCA has planned.

Manage and categorise current outstanding and new complaints

The FCA has advised consumers to complain now if they haven’t already, and to go directly to lenders rather than through CMCs and law firms. Firms already have a backlog of commission complaints still in the pending tray but this action will likely increase that number further. Are your customer facing teams able to handle this increase? Short term support may be required to increase capacity over the coming weeks and months to ensure the expected influx is managed and categorised correctly ready for the future remediation activity. Turning to specialists like EQ can boost your in house teams quickly and easily for however long the demand is there.

Review your data

The FCA announcing that claims could go back as far as 2007 has troubled many in the sector. Data protection rules mean that firms will rarely have detailed data that goes back that far, and consumers are even less likely to keep records from nearly 20 years ago. However, firms will be expected to work with what they do have and extrapolate based on what they know of arrangements from that time period. With that in mind, firms that haven’t already should get started on diving into their databases and records to determine what is available from that time frame and how to go about filling the gaps. Firms such as EQ can support this work by providing data specialists to review what is already held, where it is held, and identify how it can be brought into a format suitable for future analysis and work should it be required as part of the expected redress scheme.

Think about how you will run the Compensation Scheme

This is not just about having the reserves to pay any potential compensation, but also to fund the operational requirements for collating, analysing, reviewing, processing, and paying each complaint and compensation claim. With the certainty that some shape of redress scheme will be required, firms should turn their attention to how they will achieve this and determine suitable partners to work with if their in-house capacity is insufficient. Talking with a firm such as EQ, who has over 20 years of redress experience, can provide an excellent perspective. Both on where to start for those who have not yet looked into this, and in more effective ways of working for those who have already started on preparations.

Aspects to consider here include your data, as we have mentioned, your staffing resources and capabilities, and the systems and tools used to process the claims and make the end payments. With claim volumes expected to increase following the FCA’s invitation and media coverage, having full confidence that your current system is robust and scalable enough to cope with both the numbers and the process is a vital reviewing task firms can undertake now.

Wherever your existing cases are held, the following points need to be considered:

• Does it have the scale and flexibility to accommodate both DCA and non-DCA complaints?
• Can it access the right data sources?
• Can it support the kind of structure and redress processes that the FCA are likely to want?

These are vital questions about your complaints management platform’s capabilities that need positive answers before the compensation scheme is fully introduced.

As a fully end to end supplier that covers the entire customer complaint and remediation journey from initial recording through to end payment and reporting, EQ can offer unrivalled expertise on how to optimise every step of the process. This includes the technology platforms you use, the processes you adopt, the treatment strategies for each cohort of cases and the skilled people responsible for managing the whole process.

Engage with the Consultation

Expected in October, the FCA will be inviting all industry stakeholders to input on their plans, particularly around what constitutes an unfair relationship between consumer and lender.