Supreme Court hears opposing views of role of broker in motor finance

Car dealers selling finance to customers purchasing a vehicle were either the linchpin in the process determining the price and provider of the loan or merely the “introducer and administrator” of such arrangements, the UK Supreme Court heard on April 2.

The distinction will be crucial in determining whether lenders will be liable for billions of pounds in redress payments for mis-selling car finance. The Supreme Court is hearing an appeal by two banks — Close Brothers Group and FirstRand — against a Court of Appeal judgment involving three separate car loans.

No one goes to a dealer “expecting financial advice”, said Jonathan Kirk KC, acting for the National Franchised Dealers Association (NFDA). The NFDA has been granted permission to intervene in the case, as has the Financial Conduct Authority (FCA).

Kirk thanked the Supreme Court for affording the NFDA the chance to “aid” the court’s understanding of the role of the dealer in the sale of motor finance.

John Lewis salesman

No one goes to a dealer expecting the dealer to act “with anything other than in their own interests”, Kirk said. He likened the role of the broker in obtaining finance to that of a John Lewis salesman who sells an extended warranty alongside a television, or a kitchen design company that recommends a fitter to a customer.

It should be obvious to customers that the finance offered by a dealership was from a preferred provider, Kirk said. He added that, contrary to what the Court of Appeal had concluded, the NFDA’s submission was that motor finance was a commercial service intrinsic to the sale of the vehicle.

Around 80% of all cars purchased in the UK are bought using finance, according to the Financial and Leasing Association. The majority of these finance agreements are hire purchase loans, and it had been “understood” since 1914 that commission payments were a normal part of hire purchase arrangements, said Kirk.

Part of what the Supreme Court must decide is whether commission payments to dealers from lenders were secret payments.

Broker discretion

In contrast, Robert Weir KC, representing the respondents — Marcus Gervase Johnson, Andrew Wrench, Amy Hopcraft and Carl Hopcraft — said that the dealer played the central role in arranging finance for unsophisticated customers.

“To this end, the dealer obtains the claimantʼs [respondentʼs] financial details. The dealer, not the claimant, had access to a panel of lenders,” Weir said. “The dealer selected a single proposed agreement from one lender and in Johnson, and at least one of the agreements in Wrench, the dealer set the interest rate for the prospective credit agreement [and] they put this single prospective credit agreement and only that single prospective credit agreement to the claimant.”

The case continues.