Ruling in Hopcraft Cases: Clarifying the Legal Limits of Broker-Lender Connections in Car Financing
The Financial Conduct Authority (FCA) has been actively addressing concerns over commission practices in the motor finance industry, with several significant updates and announcements since 2021.
In January 2021, the FCA updated CONC 4.5.3R to clarify that the nature and existence of commission arrangements should be disclosed prominently if knowledge of the existence or amount of commission could potentially affect a broker's impartiality in recommending a product or have a material impact on a customer's transactional decision.
Simultaneously, CONC 4.5.6R introduced an outright ban in respect of Disclosure and Commissions (DCA) in relation to motor finance agreements. This move was followed by an outright ban on DCAs in other consumer credit agreements from January 2023.
The Supreme Court's decision in the 'Hopcraft appeals' concerning the payment of commission by finance lenders to motor dealers has also had a significant impact. The court allowed the appeals brought by the finance companies except that it upheld Mr. Johnson's claim that the relationship between him and the lender was unfair, and he was awarded the amount of the commission plus interest. The 'Hopcraft appeals' are named after the claimants in one of the cases, Amy and Carl Hopcraft, with the other two claimants being Marcus Johnson and Andrew Wrench.
The FCA has proposed that DCAs would be covered by the redress scheme, where the broker could adjust the interest rate offered to a customer, if they were not properly disclosed. The FCA currently estimates that most individuals will probably receive less than £950 in compensation per agreement.
In a further policy statement published in December 2024, PS24/18, the FCA extended the complaint handling pause to 4 December 2025 to non-DCAs. The FCA is also proposing to consult on establishing a redress framework.
The total costs to motor finance lenders could be between £9 billion and £18 billion, according to the FCA's estimates. The Consumer Credit sourcebook (CONC), which came into force on 1 April 2014, includes rules and obligations specific to consumer credit brokers and lenders.
Brokers are required to disclose the likely or known amount of commission, fee, or other remuneration they receive, in good time before a regulated credit or consumer hire agreement is entered into, if the customer requests it (CONC 4.5.4R).
Law firms involved in motor finance compensation claims have participated in consultation preparations following the Financial Conduct Authority's (FCA) announcement. However, the FCA is leading the consultation, and specific firms involved have not been listed publicly yet. Factors considered in determining compensation include the size and nature of commissions relative to credit charges, consumer characteristics, compliance with regulatory rules, and the extent and manner of disclosure to consumers.
The issues considered by the Supreme Court included whether a car dealer owes a duty to the buyer of a car to enable them to bring a claim against the lender for bribery or dishonest assistance, or under the Consumer Credit Act 1974. The Supreme Court found that a motor dealer acting as a regulated credit broker does not owe a fiduciary duty to prospective borrowers for whom it arranges motor finance.
The FCA issued a policy statement, PS24/11, in which it confirmed its extension of the DCA complaint handling pause until 4 December 2025. The FCA's ongoing review and actions underscore its commitment to ensuring fairness and transparency in the motor finance industry.
