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UK Auto Finance Insights – January

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January takes its name from the Roman God Janus, who had two faces – one to see the future and the other to review the past. Whether the motor finance industry peers through the windscreen or looks in the rearview mirror, the picture appears the same: concern over commission disclosure and anxiety over the rising depreciation of electric cars.

Far from settling matters, a series of court rulings at the end of last year have escalated to appeals in higher courts for 2025. The cases involve grievances among consumers who found themselves unknowingly subjected to commission payments as part of their motor finance agreements. The Financial Conduct Authority (FCA) is considering a consumer redress scheme that could cost auto finance lenders £25 billion, according to the Bank of England.

The first appeal, brought by Close Brothers and FirstRand Bank (trading as MotoNovo), goes before the Supreme Court on April 1. April Fool’s Day seems an inauspicious start to a review of the Court of Appeal’s ruling that commission disclosures should go beyond what was agreed to meet the legal and regulatory requirements of the time. Lenders and intermediaries will also pay keen attention to the Supreme Court’s opinion on whether they have a ‘fiduciary’ duty to borrowers – i.e. they have to act on behalf of the customer, and not for their own benefit.

In a separate case with similar features, Barclays is to appeal to the Supreme Court, having failed in a judicial review at the High Court. The bank had attempted to overturn the Financial Ombudsman Service’s decision to uphold a complaint in a car finance arrangement involving a discretionary commission agreement (DCA).

The FCA is due to set out the next steps of its review of DCAs in May, although the timing will depend on the Supreme Court’s ruling on non-DCAs. The FCA has already confirmed that the scope of consumer complaints can extend to motor leasing, even though the Court of Appeal only focused on hire purchase agreements. Consumers have until the end of July 2026 to refer a non-DCA complaint to the Financial Ombudsman.

The crisis over commission payments came against the backdrop of a second consecutive year of growth in new car sales, with registrations up 2.6% in 2024 to 1,952,778 units. Sales of battery electric cars failed to reach the thresholds set by the Government’s Zero Emissions Vehicle mandate, while electric vans saw a marginal decline in their market share, although flexibilities in the mandate mean no manufacturer was in line for fines.

The growth in EV sales is being driven by the company car and salary sacrifice sectors, prompting fears among leasing companies of ever-increasing EV depreciation unless private consumer demand for new and used battery-powered cars increases. There was some comfort, however, that EVs were the fastest-selling fuel type in the used car market in December.

Meanwhile, the Government remains committed to its phase out of petrol and diesel cars from 2030, and has opened a consultation to determine guidelines for hybrid vehicles and new non-zero emission vans sold between 2030 and 2035.