Johnson, Wrench and Hopcraft Supreme Court Decision: an overview of the judgment and our initial reactions
The Supreme Court decision brings common sense to allegations of bribery and the idea of a disinterested duty, but unfair relationships still leave motor finance firms with substantial headaches
Much of the judgment is to be welcomed! Particularly that brokers are not fiduciaries of customers, and do not owe a disinterested duty. Without doubt this is a win for industry. However, substantial complexity and potential liability remains, it’s just not as bad as it might have been.
The industry now faces a guaranteed pivot in the focus of complaints and claims management activity. With fiduciary duty and bribery-based claims effectively shut down by the Supreme Court, unfair relationship allegations under section 140A of the Consumer Credit Act are set to dominate. This introduces new risks and challenges for firms.
The FCA moved quickly to acknowledge the Supreme Court’s judgment, confirming that it was already analysing the decision and its implications with the objective of providing clarity for consumers, firms and investors as soon as possible. The FCA has confirmed it will announce over the weekend and no later than Monday 4 August whether it intends to consult on a redress scheme. We will be watching closely for the details and will provide further insight next week on how this is likely to unfold in practice.
From a redress viewpoint, the Supreme Court judgment has fundamentally changed the landscape for existing and future complaints. Bribery and fiduciary duty as routes to redress have been closed off and the focus now moves entirely to section 140A of the Consumer Credit Act and whether the relationship between lender and customer was unfair. Complaints will continue to arrive in high volumes, but success will now depend on a fact-specific assessment of commission levels, commission structures, the clarity and prominence of disclosures and the nature of any broker–lender tie.
Contagion of the principles in this case has been a big concern since the Court of Appeal’s judgment in October last year. Leasing and consumer hire markets are likely to breathe a sigh of relief, given the unfair relationships provisions of the CCA only apply to credit agreements (such as PCP, Hire Purchase and restricted use loans). However, the ramifications of this judgment and the risks of contagion into other markets will require detailed and careful assessment (and this will be what keeps us occupied over the weekend).
Firms might now consider what the impact is on customer journeys. We think the judgment paves the way for simplification and consolidation of commission disclosure (and indeed removes the challenges in some distribution chains of duplicate or triplicate disclosure). The need for consent also falls away, though repurposing this as acknowledgement is likely to be needed given the issues highlighted on prominence. However, whether firms will risk rowing back from disclosing the amount of the commission is another matter.
Our multi-specialist team can support you through this exercise, and bring considerable legal, compliance and operational remediation experience to bear to help your firm to rapidly react to the judgment, understand the impacts on your business and set your firm up for success.
You can read our more detailed summary of the judgment, designed to be more accessible than the 110 page judgment itself in our PDF document - fill in the form here or click the image below to get a download link.
We are planning for a special Helping Hands webinar on the morning of Monday 18th August. You can register here and will share further information across our platforms shortly.
To talk to us about this more and book an individual review and impact assessment session with a member of the team, please contact us on the following details:
Jo Davis
07741 240114 / Jo.Davis@auxillias.com
Daksha Mistry
07458 304068 / Daksha.Mistry@auxillias.com
Paul Godsmark
Dan Richards
