Committee publication · Correspondence · 19 November 2024

Letter from Nikhil Rathi, Financial Conduct Authority, relating to motor finance, dated 13 November 2024

Inquiry: Work of the Financial Conduct Authority

Summary

Nikhil Rathi, FCA Chief Executive, updates the Treasury Committee on the Court of Appeal's October 2024 judgment requiring motor finance lenders and brokers to obtain informed consumer consent for commissions. The FCA is monitoring market responses (11 firms paused lending, 8 have resumed), engaging with 63 firms, and proposing to extend complaint-response deadlines to mid-December 2024. The judgment impacts both fixed and discretionary commissions; two lenders intend to appeal to the Supreme Court.

Key findings

Court of Appeal (25 October 2024) found brokers owed disinterested and fiduciary duties to consumers; all three cases involved breach because borrowers did not give informed consent to commission payments, requiring disclosure of material facts including commission amount and calculation method.
11 firms paused motor lending to comply with the judgment; 8 have returned to lending, 3 switched to zero-commission model. Material impact on some firms' share prices and credit ratings reported.
FCA engaged with 63 lenders and brokers; joined industry–government discussions and convened industry roundtable with consumer representatives and the Financial Ombudsman Service.
FCA will consult on extending complaint-response deadlines and consumer referral times to Financial Ombudsman Service, with extension expected in place by mid-December 2024, covering at least until Supreme Court decides on permission to appeal.
FCA banned discretionary commission arrangements (DCAs) in 2021 following 2019 review; launched historic DCA review in January 2024, extended deadline to 4 December 2025 in September to account for court decisions and obtain needed data.

Tone

Factual

Topics

consumer-financemotor-financefinancial-conductregulatory-enforcementcommissions-disclosure

Key actors

Nikhil Rathi, Financial Conduct Authority, Court of Appeal, Financial Ombudsman Service, Prudential Regulation Authority, Finance and Leasing Association, Barclays Partner Finance, Dame Meg Hillier MP

Notable line

“The Court of Appeal found the broker owed both a disinterested duty”

Key Quotes

“The Court of Appeal found the broker owed both a disinterested duty (to provide information, advice or recommendation on an impartial or disinterested basis) and a fiduciary duty (a duty of loyalty attracting certain obligations in relation to conflicts of interest) to the consumer.”
— Court of Appeal judgment (as summarised by Nikhil Rathi) · describing the key legal findings on broker responsibilities in motor finance

“In all three cases, the Court of Appeal decided that the fiduciary duty had been breached because the borrowers' informed consent to the pa yment of commission had not been given.”
— Court of Appeal judgment (as summarised by Nikhil Rathi) · explaining the basis for finding liability across all three cases

“We estimate around 2 million people a year rely on motor finance to buy a vehicle.”
— Nikhil Rathi · illustrating the scale and importance of the motor finance market

“There is a risk any changes made by firms to ensure their customers' informed consent for commission in motor finance arrangements may not be implemented efficiently or consistently.”
— Nikhil Rathi · identifying concerns about implementation of the judgment across the market

“Motor finance firms are likely to receive a high volume of complaints in response to the recent Court of Appeal judgment.”
— Nikhil Rathi · explaining the rationale for extending complaint-response deadlines

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Source · parliament.uk record ↗