The Court of Appeal ruling on Johnson v FirstRand Bank (MotoNovo), Wrench v FirstRand Bank and Hopcraft v Close Brothers has been reverberating round the leasing broker, leasing company and asset funding industry since it was announced on 25th October.
In a summary of the case by Gough Square Chambers, they outlined the case as follows:
All three cases shared a similar scenario; each claimant had visited a motor dealership to purchase a vehicle. Each dealership assisted the claimants in obtaining finance to fund the purchase. The claimants entered into the credit agreements arranged by the dealerships and provided by the defendants. The dealerships received commission from the defendant lenders. The commission structure in all cases permitted the dealer a level of discretion to fix the interest rate. The higher the interest rate, the higher the commission.
In Hopcraft, there was no mention of commission in the paperwork provided. In Wrench the terms and conditions disclosed that commission may be paid in a sub-clause under the heading ‘General’. In Johnson the terms and conditions similarly disclosed the possibility of a commission, and, in addition, the possibility was also disclosed within a ‘Suitability Document’.
Senior managers across the industry are urgently considering the implications of the judgement. The BVRLA https://www.bvrla.co.uk/ is working with its legal advisers to fully digest the terms of the case and understand the potential impact on BVRLA members. It is also in conversation with other trade associations, the Financial Conduct Authority and HM Treasury.
In the meantime, some funders such as MotoNovo Finance and Close Brothers have suspended writing business; although others have been working towards this outcome anyway. For example, Novuna Vehicle Solutions introduced fixed commissions on regulated business in August.
What is for sure is that all industry players will be assessing their business models right now. For example, it is likely that leasing brokers will need to charge management fees for the service and advice they provide on vehicle acquisition rather than using the commission model. In addition, they may need to evaluate providing additional fleet management services.
Author: Ian Hare, MD, Motor Management
