Leasing companies and brokers affected by Court of Appeal ruling

Leasing companies and brokers are assessing the impact of a Court of Appeal decision on fees paid for vehicle finance transactions.

Some suspended business listings while they assessed the ruling’s implications, while others introduced new measures to reflect the ruling.

In the reference judgment, Court of appeal found in favor of three consumers who claimed they were mis-sold auto finance products by Close Brothers, Firstrand Bank and Motonovo.

The court concluded that it is illegal for a broker, such as a car dealer, to receive a commission from a lender offering car financing to a customer unless it has been disclosed to the customer and the customer has consented informed for payment.

The judges’ ruling did not reflect Financial Conduct Authority (FCA) rules, but the long-standing common law principle of fiduciary duty, which meant that the broker – the car dealer in this case – must act in the best interests of the client and not – a conflict position.

FCA chief executive Nikhil Rathi said this week Investment Association Annual Dinner: “Since the ruling, we have been in close contact with the firms involved, the wider sector and the Government to monitor the market, analyze the impact on industry and consumers and identify what action is needed.

“First, we need clarity on whether this is the last word of the courts on this matter.

“The two creditors in the case intend to appeal, and it is in everyone’s best interest that when they do, the Supreme Court quickly decides whether it will accept the appeal and, if it does, whether it agrees with the Court of Appeal.

“In the meantime, our focus is on ensuring that customers receive fair treatment under the law and that the auto finance market continues to function well.”

Even though this was a business to consumer (B2C) case, the court’s decision had ramifications for business-to-business (B2B) brokers and funding panels.

Vince Pemberton, chief executive at Rivervale, which operates as both a broker and financier of its own books, said: “The leasing broker sector was really surprised by this ruling. For many years, we have constantly informed our customers, whether they are B2B or B2C, about the existence of the financial commission. This transparency is not new or accidental, it is part of our culture and has been an integral part of our ongoing external audit process.

“It’s hard to see how the cases at the center of this Court of Appeal decision resemble what leasing brokers across the country do every day. It feels as if a “one size fits all” solution has been imposed on an industry where such an approach does not apply.

“We had anticipated some changes to the disclosure of commissions, but it appears that both the industry and our regulator have been taken aback by this decision.

“At Rivervale, we work with 11 funders and hope they will work closely together as we adapt to these new process requirements.”

Fleet news understands that Kinto, which provides access to a pool of financiers, is assessing whether the Court of Appeal’s decision impacts on the fees payable for leasing corporate fleets.

It says it is monitoring the situation while awaiting further guidance from the British Vehicle Rental and Leasing Association (BVRLA) and the FCA, but is continuing to place orders.

Lloyds, the parent company of Lex Autolease and retail arm Black Horse, says the ruling “sets a higher standard” for the obligations credit brokers owe to customers when disclosing commission arrangements. The bank added that it is “assessing the potential impact” of the decision.

A Novuna Vehicle Solutions spokesman said it has introduced a new commission consent form for all new and ongoing leases within the business where there is a commission or fee paid.

“Working closely with our partners and clients, we ensure we now have explicit consent for commission payments as part of their leases, building this into the pre-contractual stages, ensuring we remain transparent at all times and minimize any disruption to our clients ,” the spokesperson added.

“The changes we have made are in line with our commitment to delivering good outcomes for all our customers, ensuring they are treated fairly at all stages of their deal, and we will continue to monitor developments, working with the industry, including BVRLA and FLA (Finance and Leasing Association).”

In a statement, BMW Financial Services, including Alphabet, said it had made the “necessary changes” in the provision of finance and leasing products to comply with the ruling.