Friday’s Supreme Court ruling on the Johnson v FirstRand motor finance case is already impacting live lending decisions and industry practices, in response to James Tew, CEO of iVendi.
While much of the main focus has been on how the judgment will influence redress for historic deals, Tew said its implications must even be considered by way of present and future lending behaviour.
“There may be rightly much attention being paid to how the Johnson decision will play out through the FCA’s consultation on older lending,” he said. “Nonetheless, it’s necessary to recognise its implications also have to be applied to what lenders and dealers are doing now.”
Tew highlighted three key areas raised by the Supreme Court that ought to be of immediate concern to the industry: the character of lender-dealer relationships, the extent of commission paid, and the clarity of data provided to “unsophisticated” consumers.
“Firstly, there remain grey areas around lender relationships with dealers,” he explained. “This is particularly true in the case of co-manufactured finance products, where the dealer influences the speed set and other parameters. If these products are prioritised over others, this must be made clear and disclosed to the buyer.”
Tew also pointed to the problem of high commissions, noting that the 55% commission involved within the Johnson case was deemed excessive under the ‘unfair relationship’ provision.
“Lenders will probably be reviewing their commission structures today,” he said. “While clarification will probably come from the FCA’s redress consultation in October, the industry is currently guessing what will probably be considered ‘excessive’.”
He cautioned against any regression in disclosure standards. “A couple of people have questioned over the weekend whether the Supreme Court decision opens the door to a return to avoiding commission disclosure under CONC 4.5.3. Our view is that this may be a dangerous backwards step. It’s clear the fitting thing is to at all times be transparent.”
The ruling also shone a highlight on find out how to ensure finance information is accessible to less financially experienced customers. Tew called on the FCA to make clear expectations on this area.
“We’ve worked hard to construct safeguards for vulnerable customers into our platform, and we stand by the standard of that work,” he said. “But finance products remain complex beyond headline figures. There’s a matter mark over what information a commercially unsophisticated consumer, to make use of the court’s phrase, really must see. This ought to be codified now – not settled through future litigation.”
While Tew acknowledged that the judgment was broadly positive for the sector in that it limited redress exposure, he warned that reputational damage from the continuing scandal has left dealers and lenders with work to do.
“Consumer trust is little question very low following the negative media coverage,” he said. “There must be a means of rebuilding.”
He added: “Dealers and lenders clinging to opaque, captive-led models reside prior to now – and could be the ones most exposed to future mass claims.”
This Article First Appeared At www.am-online.com
