A Court of Appeal judgment in October 2024 (full text can be found here) found that car dealers, when selling finance alongside the car, owed their customer a duty of undivided loyalty (or ‘fiduciary’ duty). This means that the law requires that the customer must be given clear information about the existence, nature and amount of commission the dealer could receive from the sale, and that the customer must give informed written consent to this before the commission can be received. This is the law of the land unless and until the Supreme Court or Parliament overturns this.
This requirement is in addition to the requirement in FCA rules (at CONC 4.5.3R) which already required the existence and nature of commission to be disclosed to the customer.
Consistent with the Consumer Duty, this should lead to a good customer outcome. The customer should clearly understand what they are being offered and have the information they need to make an informed decision about what is right for them and about whether to consent to the commission.
Rules on disclosing commission
- These rules apply to commission received by both dealers and brokers.
- Where commission is payable, there is a duty to disclose the existence, nature and amount of commission to the customer and to obtain the customer’s informed consent to the payment of commission.
- This relates to all commission models.
What amounts should be disclosed?
Any remuneration connected to the agreement, directly or indirectly, should now be disclosed. This includes not only commission but also other forms of remuneration such as administration fees, panel fees or any other remuneration that passes from a lender to an intermediary. This would typically not include, for example, separate funding streams from an OEM to a retailer to support asset sales, but it would include payments made by a lender to an intermediary as a consequence or reward for the volume of finance business referred.
Which remuneration should be disclosed and by whom?
All the remuneration paid as part of the tri-partite agreement should be disclosed to the customer, including where there is both a primary broker and a secondary broker. This means:
- Lenders should disclose the remuneration that they pay to the intermediary, as above.
- The intermediary should disclose the remuneration that they receive. This includes scenarios where the intermediary receives remuneration from a party other than the lender, such as a broker. This means that the broker and retailer are each responsible for disclosing the remuneration they receive.