Close Brothers resumes new lending after landmark court of appeal ruling

Close Brothers Motor Finance has resumed issuing new vehicle finance agreements as part of a phased return following its temporary pause in lending on October 25.

The halt was initially implemented in response to a Court of Appeal decision that mandates increased transparency in commission disclosures within the motor finance industry. The recent judgment has left the sector in disarray, as industry leaders assess how to adapt to these significant new legal requirements.

Close Brothers initially reintroduced new business on November 2 with specific partners and now plans to gradually restore lending operations with all third-party partners.

The decision to pause lending stemmed from the Court of Appeal’s recent ruling, which forced brokers to disclose any commissions received from lenders when arranging vehicle loans, with customers needing "fully informed consent."

Seán Kemple, CEO of Motor UK and Retail Finance Ireland for Close Brothers, explained: “The Hopcraft Court of Appeal judgment led to a unique situation that meant unprecedented change was needed, almost immediately. We took the difficult decision to pause lending for the right reasons, to keep our customers, partners, and our business safe. I want to say a special thank you to my colleagues for reacting so quickly to the new requirements for commission disclosure, working night and day to develop an effective solution very quickly."

Close Brothers initially announced its intention to appeal the judgment in the Supreme Court which could mean industry-wide compensation liabilities exceeding £16 billion. Other major finance players, including Lloyds Banking Group and Santander, could also be severely impacted by the financial repercussions.

The Court of Appeal judgment consolidated cases involving Close Brothers and Firstrand Bank, which had challenged earlier Financial Ombudsman Service (FOS) decisions on commission disclosure.

Stephen Haddrill, director general of the Finance & Leasing Association, remarked at the time: “This is a significant and unexpected judgment, the implications of which stretch far beyond the motor finance sector, making it an issue that demands the immediate attention of the FCA.”

The motor finance industry has responded with calls for regulatory and legal clarity with Adrian Dally, FLA director of motor finance at the Finance and Leasing Association, advocating for a stay on FOS complaints and court cases related to commission payments.

“Our view is this should go to the Supreme Court on an expedited basis and, pending the final answer from the highest court, we think there should be a pause on complaints going to the Financial Ombudsman Service. We think there should be a stay for market stability and integrity,” he said.

Speaking at an Auto Trader webinar update on the impact of the Court of Appeal ruling, Jo Davis from Auxillias, a specialist law firm specialising in the consumer, motor, asset finance and leasing sectors, said in order for the appeal to go to the Supreme Court, Close Brothers will need to demonstrate a clear public interest.

"There's work going on around making sure that there is a public interest in order for the Supreme Court to hear it. My understanding is that there are some meetings with the regulators next week and then meetings with the Treasury the following week."

Most dealerships are understood to have now implemented the necessary adjustments in disclosure practices and are reporting a return to normal operations. Even so, 60% of those surveyed by Auto Trader said they believed the ruling would ultimately impact the revenue that they generate through finance.

At the webinar, Auto Trader commercial director Ian Plummer said lenders have adopted varied approaches. "Some of these lenders are obviously operating in different ways," he clarified, with differences in paperwork requirements, the types of financing terms offered, and the methods - digital or otherwise - used to process them.”

Davis outlined a roadmap of compliance measures to help businesses adapt to the updated standards, ensuring clarity for consumers while protecting finance providers from legal and compliance risks.

As she pointed out, recent regulatory changes and case law have placed a renewed emphasis on transparency, disclosure, and informed consent in consumer finance arrangements.

Key recommendations

Document Review and Process Updates

Davis stressed the importance of conducting a foundational review, advising all credit brokers and dealers to review all documents and processes to align with new requirements. The goal is to achieve clear, prominent, and transparent disclosure in all consumer-facing documentation.

Davis highlighted the need for disclosures that adequately reflect a broker’s status and independence, together with an accurate description of the credit broking service, specifying whether they represent one lender or multiple lenders.

Clarifying Roles and Service Scope

Ensuring consumer understands the broker’s role is a critical part of compliance. Davis stressed the importance of outlining a suitability assessment regarding the product. By explicitly defining their services and any limitations, brokers can set proper consumer expectations and avoid miscommunication about their scope and role.

Disclosure Obligations

 In January 2021, the regulatory requirement extended to the “nature” of commission models, referring to specifics such as whether the commission is fixed or percentage-based.

The impact of the recent ruling, which introduced new standards on informed consent means brokers now must ensure consumers are fully aware of their commission arrangements and give explicit consent.

Davis advised that all brokers update information disclosure documents to reflect these requirements and explain exactly what it is their role is.

Capturing and Recording Consent

An essential compliance practice is the need for capturing, recording the confirmation of understanding and the consent from customers regarding commissions.

Davis noted: “We are making a shift to nature, existence, and then amount” in disclosures and brokers now need robust systems for record-keeping, as they must document that customers understand and agree to commission arrangements.

Different methods to capture consent are emerging, with some firms requiring signatures, while others ask customers to reply to an email and let them ackowledge that commission arrangements have been explained.

Conflict of Interest Management

Davis underlined the importance of conflict of interest management in compliance. She explained that brokers need a clear disclosure supported by an internal policy document to manage any potential conflicts.

This step is critical in cases where brokers might be incentivised by commission structures that could influence consumer finance options. 

Collaboration with Lenders

To meet disclosure and consent requirements, Davis spoke of the need for ongoing collaboration with lenders. Both brokers and lenders share the responsibility to obtain informed consent and must work together to define who will handle each aspect of the disclosure.

Timing of Disclosures and Consistency 

Davis suggested a comprehensive approach to disclosure timing, recommending that brokers integrate these disclosures into all consumer-facing materials.

She noted that informed consent may vary by journey and product type but encouraged brokers to ensure these details are consistently included in terms and conditions, FAQs, and staff training.

Commitment to Consumer Duty aims

Concluding her presentation, Davis highlighted the overarching aim of these compliance updates: to meet the consumer duty of ensuring car buyers have enough information to make well-informed decisions and stressed that, operationally, all disclosures and processes should reflect this commitment to clarity and consumer understanding.