FCA publishes request to intervene in Supreme Court case, defends action over motor finance

The Financial Conduct Authority (FCA) has published its application to the UK Supreme Court for permission to intervene in three cases involving motor finance that are scheduled to be heard at the beginning of April. The Supreme Court is hearing an appeal in the cases Hopcraft v Close Brothers, Johnson v FirstRand and Wrench v FirstRand. The regulator has asked to intervene in five points under Rule 26 of the Supreme Court Rules 2009.

The cases which are being heard together all involve undisclosed commissions when customers bought vehicles with finance agreements.

In its application, dated January 14 but published on the regulator’s website last week, the FCA said it could provide the Supreme Court with “significant, independent and non-duplicative assistance in the resolution of these appeals”. This included the interpretation of FCA rules and related legislation, the interaction between private law remedies and the regulatory framework, and the broader context of the motor finance and related consumer markets, it said.

The FCA said the court’s decision will inform the outcome of its ongoing market-wide investigation.

FCA market review

In January 2024, the FCA began an investigation into the use (pre-2021) of discretionary commissions arrangements (DCA) in the motor finance market. These agreements enabled car dealers to earn a higher commission for themselves in return for setting a higher interest rate for the customer.

The review using the FCA’s section 166 powers was originally scheduled to conclude in September 2024. It has twice been delayed and is now not expected to announce before December 2025 whether an industry-wide redress scheme will be required.

In January 2024, the FCA paused its requirements for motor finance firms to respond to customer complaints in relation to DCAs. Then in October 2024, following the Court of Appeal decision which upheld the appeals of Hopcraft, Wrench and Johnson, the FCA included in this pause all complaints involving commissions and motor finance. Its intention, it said, was to avoid disorderly or inconsistent outcomes and to ensure it could conclude its market-wide investigations.  

Not retrospective

Nikhil Rathi, chief executive of the FCA, has separately been defending the regulatorʼs actions in relation to the motor finance market, and denied its intervention was retrospective.

“An argument has been made that the intervention on motor finance was retrospective, seeking to apply the ban on discretionary commissions to contracts that were undertaken before. What is being tested in the discretionary commission element is whether firms were complying with the rules that were in place at the time,” he said. “That is what was tested when the [Financial Ombudsman Service] case was judicially reviewed. The bank did not succeed in that judicial review.”

The ombudsman case is separate to the cases being considered by the Supreme Court, which all involve cases which began in the court system. Barclays Bank initiated the judicial review after the ombudsman ruled against it in a case involving discretionary commission. It is now appealing the decision in the judicial review.

The ombudsman decision in the Barclays case, along with another involving Lloyds Bank-owned Black Horse — both published in January 2024 — were what prompted the FCA to initiate its industry-wide review of discretionary commissions.

The ombudsman has received hundreds of thousands of complaints about motor finance sales according to the FCA’s application to the Supreme Court.

Legal advice

Rathi was responding to questions from the House of Lords Financial Services Regulation Committee during a hearing on January 22. In December, the committee wrote to Rathi asking what legal advice the FCA had taken when it finalised its rules banning discretionary commissions, which came into force in 2021.

Lord Grabiner asked if “with hindsight” the FCA regretted not having taken legal advice when formulating the rules.

Rathi said that the specific point of a disinterested party — a key part of the Court of Appeal decision — was not considered an “issue of significance” at the time, despite the rules being “consulted on very widely”.

HM Treasury

Last week, HM Treasury also said it had applied to the Supreme Court for permission to intervene in the cases.

“We want to see a fair and proportionate judgment that ensures compensation to consumers that is proportionate to the losses they have suffered, and allows the motor finance sector to continue playing its role in supporting millions of motorists to own vehicles,” a Treasury spokesperson said.  

HM Treasury said it was also concerned that the Court of Appeal judgment “may not have fully taken into account” FCA rules in this space, and could undermine the UK’s approach to competitiveness.

Last autumn, banking group Santander was forced to delay its third quarter results following the Court of Appeal decision. And in December, Charlie Nunn, chief executive of Lloyds Banking Group, said the judgment was making it harder for investors to have confidence in the consumer finance industry.

In 2023, 78% of new cars in the UK were bought with some form of finance according to trade body the Finance and Leasing Association.

Lloyds has so far set aside £450 million to pay potential motor finance claims, while Santander has set aside £295 million.

On Monday, an HM Treasury spokesperson said the department would not be publishing its application.