Finance industry calls for halt on commission cases following shock ruling

The motor finance industry is urgently calling for a pause on regulatory action on all complaints and a stay on court cases involving commission payments.

In an unexpected ruling on Friday, the Court of Appeal delivered a judgment that shocked all those involved in lending to fund car purchases including finance houses, brokers and car dealerships.

Lender Status Updates

Adrian Dally, director of motor finance and strategy at the Finance and Leasing Association, briefing journalists today, talked extensively about the impact of the decision, its repercussions for industry operations, and outlined what action could help bring a return to stability to the market.

“Our view is this should go to the Supreme Court on an expedited basis and the issue should be resolved in the round and, pending the final answer from the highest court in the land, we think two other things should happen.

“One is a pause on complaints going to the Financial Ombudsman Service (FoS) as this ruling clearly affects all types of complaint about commissions, so we think the pool should be broadened.

“Secondly, similar things should happen in the courts because, as there will be a thousand cases, we think there should be a stay until the Supreme Court has ruled for the sake of stability in the market and market integrity.”

The October 25 judgment has left the finance sector in a state of panic, with Dally noting the sudden legal change was “genuinely unexpected.”

Hear more about the ongoing issues in the motor finance sector at Automotive Management Live on November 13 at Birmingham NEC. Adrian Dally, director of motor finance & strategy, Finance and Leasing Association (FLA) will be joined by Jerry Page, HR Owen’s compliance & risk director, as well as financial compliance experts Andrew Smith, Paxen Group chief executive and Adam Edwards, partner & head of financial services at Freeths

He said that for years, the FLA and its members had operated under the understanding that the law required only the disclosure of the existence and nature of commissions.

This was in line with regulatory updates made in 2021 which removed the obligation to disclose the amount of commission.

According to Dally, firms have been complying with that regulatory requirement which is why the recent judicial interpretation of the law that ruled that full disclosure of commission amounts were now required has shaken the industry.

Dally explained that in light of the court’s ruling, thousands of existing agreements may be considered unlawful, having been processed under a compliance structure previously deemed sufficient by both the industry and the regulators.

“One hour before (the ruling), agreements were lawful… the next hour, done the same way, they suddenly became unlawful,” Dally said, explaining that its members had been winning the vast majority of commission complaints that had come before the lower courts up until the October 25 ruling, making the Court of Appeal’s stance particularly surprising.

He reported that this shift has had immediate consequences for lenders, dealers, and brokers who must now ensure compliance by developing enhanced disclosure to avoid liability.

He said that many in the industry have responded swiftly: “You keep lending, but you don’t pay commission while you rebuild your systems…or you put a temporary fix in place,” Dally said, noting that such quick fixes have still come at a cost, causing operational strain and delaying service delivery to customers.

"It’s a partnership approach between lenders and dealers, but also brokers as well. Ultimately, the network has to work together so that the disclosures are made by the different parties in the chain, and that’s all communicated. So, just work with your partners. I think especially if you’re a dealer or a broker, work with your lender partners in line with the new rules.

"A fairly typical scenario is a two stage thing. Immediately you put in a compliant patch – so you might say we’ve put in a manual process where the information is given verbally, for example, and recorded, and then there’s a physical sheet of paper to sign. But the better way is to hardwire into your systems through your software and your processes, and that takes time to build."

Dally pointed out that over the weekend, customers had been arriving at dealerships, expecting to drive away with their new vehicles but leaving disappointed due to stalled financing approvals.

For dealers, the situation had been similarly difficult. Some are now unable to collect commission fees on financed sales, while others are opting to suspend lending entirely as they scramble to adjust their systems to meet the new legal standards.

Adapting systems and processes could take weeks or even months, depending on the complexity of each business's systems and processes, Dally explained.

He said the gap that has emerged between regulatory guidance and judicial interpretation has left FLA members feeling blindsided: “Our members should be able to rely on the regulator’s rules as being the final answer.” He added that the association had been “talking to the FCA and the Treasury only minutes after the judgment landed”.

The FLA is now lobbying the regulatory Financial Conduct Authority (FCA) to broaden its existing pause on complaints related to its own investigation on discretionary commission arrangements, currently limited to certain cases, to include all commission-related complaints.

Additionally, it is asking the courts for a stay on active cases until the Supreme Court can issue a final ruling, as Dally remarked, “It’s a very rare occasion when the regulator’s rules are insufficient to comply with the law.”

Dally asserted that only a Supreme Court decision would provide "absolute clarity on what the rules are,” a resolution that he and the FLA hope to see fast-tracked.

The FLA has provided a briefing document for the industry, offering compliance guidance to help members adapt their disclosure procedures.

“There isn’t one single way,” he said but noted that disclosures should be communicated in good time to allow customers to have ample opportunity to review and understand commission details.

The document outlines how disclosure can occur at various stages, such as the proposition stage, pre-contractual information stage, and potentially closer to signature stage.

The FLA said that while it hoped the Supreme Court will expedite the process to provide a definitive answer to the industry, even a fast-tracked decision could take six months to a year.

He said the FLA’s appeal is driven by the urgent need for clarity on commission disclosure laws and their implications for both businesses and customers but also to ensure that such regulatory surprises are minimised in future.

“At the end of the day, what we want is absolute clarity on what the rules are permanently and that all these cases are closed so we can move on and we want that as soon as possible.”

---

Discussing the implications of the Court of Appeal ruling, Nikhil Rathi, FCA chief executive, said that the decision hinged on common law principles of fiduciary duty rather than specific FCA regulations.

In a speech delivered at the Investment Association Annual Dinner, he said that while the recent case did not directly address discretionary commission arrangements, it intersects with an ongoing FCA investigation examining if customers were historically overcharged.

“For such cases, we have paused until December 2025 the eight-week deadline that firms have to respond to complaints. Some in the industry are asking us to expand that pause to cover complaints relating to other types of commission in motor finance.

“We are considering this carefully and working at pace through the potential benefits and risks of doing so. We understand industry’s desire for time to take stock. Equally, the Court of Appeal has made the law clear and, if that is not challenged further, then firms need to handle any complaints in line with that.”

---

Read Car loan providers must prioritise clear commission disclosure since court ruling

Watch Auto Trader Webinar

Read Court ruling on finance commissions: What does it mean for the industry?