Industry loses landmark auto finance appeal

The long-awaited Court of Appeal verdict in Johnson vs Firstrand Bank has found in favour of the claimant in a landmark case. The verdict will have significant implications for the auto finance industry which may now face fines of around £21 billion.

This decision comes in the same week that VWFS were fined by the FCA for the poor treatment of vulnerable customers.

The verdict which is being hailed as a victory for consumers may prove phyrric as consumers seeking auto finance in future will face higher costs, and the supply of funding for some segments of the market starts to dry up as lenders choose to abstain rather than participate in a market which comes with unacceptable risks.

David Betteley, head of auto finance at Asset Finance Connect said:

“There can be no doubt whatsoever that motor finance is under the spotlight as never before. We still await the result of the Barclays judicial review, but in the light of the Johnson v First Rand decision it would seem reasonable to assume that that decision also will be in favour of the consumer. There may of course be an appeal in this case, but that seems unlikely, so the industry now needs to plan for the new reality that the FCA will determine that there will be a “proportionate” redress scheme.

“Moreover, we know that there are major changes to the data requirements from the FCA coming into force from next July and that as we speak there are a large number of S166 reviews under way that will focus on (inter alia) how well (or not) firms are implementing the new Consumer Duty rules. There can be no doubt that firms need to double down on consumer duty and how they report their actions to the FCA, and do that now.

“AFC will be examining in-depth the implications of these verdicts with Wayne Gibbard, partner from Shoosmiths at our conference on the 26^th November in London.“

Commenting on the Court of Appeal decision on motor finance cases, Stephen Haddrill, Director General of the FLA, said:

“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 Financial Conduct Authority.”

This verdict is one of three expected today, including Barclays’ judicial review.

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