AS the leasing broker sector comes to terms with the outcome of the Court of Appeal decision, the BVRLA held a couple of seminars to help answer some of the questions brokers might have.
Broker News is reporting here on what it considers the key points, but as Gerry Keaney, CEO of the BVRLA noted, “This is not formal advice, it is our interpretation of outcomes of the Appeal.” He went on to say:
“This is a huge challenge for our sector.”
It certainly is that.
Katie Stephen and Joe Bamford from Norton Rose Fulbright provided legal background and interpretation of the Court’s ruling.
First, financially unsophisticated customers
The Court considered the clients at the centre of the appeal as financially unsophisticated and vulnerable. Katie Stephen said that brokers will not only need to get informed consent about the commission payable, but how much that commission will be.
“This is not restricted to regulated agreements. But the duty you owe to the customer depends on their level of financial sophistication.”
Is there a ban on commission payments?
Katie Stephen said that wasn’t the case. The key was disclosure to the customer of commission arrangements, both fixed and discretionary.
What’s more it wasn’t enough to have informed the customer of commission – which is compliant with the FCA – Katie Stephen says it goes beyond FCA rules. In a similar fashion the Court of Appeal’s interpretation of vulnerable customers goes beyond the FCA guidelines.
“The Court is talking about the customer being financially unsophisticated while needing finance to buy the car. The Court is looking at it more broadly in a relative way.”
Is the issue just one for lenders?
No, said Katie Stephen. The disclosure must be prominent and the customer must have understood the disclosure.
Claims, she said, could be brought against brokers regarding non disclosure. “We can expect more from lenders to ensure disclosure happens,” she added.
Is there a difference between regulated and non-regulated contract hire?
Chair of the BVRLA Leasing Broker Committee Rod Lloyd posed the question. He asked:
“Could there be a difference between regulated and non-regulated because of the nature of the relationship we have with non-regulated entities, because sometimes we can earn commission which is for us to facilitate that relationship over the lifetime of that vehicle or vehicles – is that about justification of the amount rather than anything else?”
In response, Katie Stephen said that the level of disclosure needed in those situations would be less.
“The court comments on some of the previous decisions which have featured more sophisticated customers and in one situation where there was awareness of the commission – that was enough to put the customer on enquiry and that was enough they knew there was commission and could have asked how much. It comes back to the nature of the customer.”
The role of the committee supporting members
Rod Lloyd (left), Chair of the committee, had this to say.
“The Appeal was turned down – but this is not unusual. Lenders have indicated they will take the appeal to the next level.
“We are leasing brokers – the court is talking about dealer brokers with limited permissions.
“The three dealers – regarded as brokers because they were brokering a deal – but the principle could apply to other sorts of brokers.
“As a committee we are committed to being the conduit between BVRLA and brokers. Write to me about how you see it. The more engagement we get the better.”
Leasing brokers should use this email address to communicate their views to Rod and the committee: Commissions@bvrla.co.uk
How brokers have reacted to the Court of Appeal commission case
Graham Lesslie, CEO, Gofor
The recent Court of Appeal commission case presents significant challenges, urging us to rethink transparency around commission disclosures.
While compliance with FCA guidelines has always been standard, this ruling raises the bar, particularly concerning financially unsophisticated customers. We know the ramifications and possible recourse for both brokers and funders could be far and wide and understand the pressures on funders to take appropriate action. This places added responsibility on brokers to communicate commissions clearly and effectively. Although adapting to this change will come with its challenges, we see it as an opportunity to build even greater trust within our industry.
In our view, these cases seem to involve hugely different customer types from those we serve within our broker community.
As our client base is almost exclusively non-regulated, we offer a solution and many additional in-life services that don’t seem relevant to these cases. Hopefully, recognition of these differences and working closely with funders and the BVRLA will enable us to work through these challenges. Knowing the broker community, we will adapt as we have always done and work through this.
Vince Pemberton, CEO, Rivervale
What’s important for us to remember is that for years we have informed our customers that we earn commission for B2B or B2C alike. The frustration is that this has been under the guidance of our regulator. If the guidance would have been that it was mandatory to show the amount then all of us would have complied. Patrick Fagan, Business Development Director, AFL
The recent BVRLA seminar provided important insights into the implications of the Court of Appeal’s decision on commission disclosure, particularly as it affects leasing brokers and the broader automotive finance industry.One significant point raised was that these obligations aren’t limited to regulated agreements but are determined by the customer’s financial literacy. Katie Stephen clarified that while the Court did not ban commissions, it emphasises that brokers have a duty to ensure that disclosures are both prominent and comprehensible to customers.
Importantly, this obligation isn’t solely on lenders; brokers, too, may face claims if disclosures are inadequate, especially concerning vulnerable customers. This heightened scrutiny suggests that brokers might need to revise practices to ensure that disclosures are clear and that customers fully understand commission structures.
Regarding regulated versus non-regulated contracts, Stephen noted that the level of required disclosure could differ based on customer sophistication. This nuance suggests a potential for different approaches based on the nature of each customer relationship.
Rod Lloyd, Chair of the BVRLA Leasing Broker Committee, highlighted the committee’s role in supporting brokers amid these regulatory changes, offering an open channel for brokers to share their concerns. His comment on the rejected appeal further underlined the possibility of further escalation, with lenders considering taking the case to a higher court.
For now, though, brokers must adapt to these evolving standards, as the ruling could influence the handling of commissions across various brokerage models.
In summary, the seminar underscores a period of adaptation for brokers as they align with a more stringent regulatory perspective. This will require ongoing dialogue and support, which the BVRLA committee is prepared to facilitate as brokers navigate the changing landscape.
Mike Thompson, Chief Operating Officer, Leasing Options
We welcome the Court of Appeal’s decision in Johnson v FirstRand and the greater emphasis it places on transparency and consumer protection within the motor finance industry.
As a leader in the industry, Leasing Options wholeheartedly endorses the advancement of standards within our sector and an increased focus on positive customer outcomes, which includes clear, upfront disclosures around commissions to ensure consumer confidence and trust.
However, it is essential to recognise that this new standard must be implemented in a way that balances consumer protection with the economic realities of our industry. Given the current economic climate and pressures following the recent budget, it is crucial that these new obligations do not inadvertently erode revenue streams to a level that could compromise service quality. Exceptional customer service requires sustainable business models, and diminishing revenue could ultimately hinder the consumer experience rather than enhance it.
We call on the BVRLA and the broader industry to work collaboratively on solutions that address these new transparency requirements in ways that protect both the consumer and the industry’s health. It is vital to ensure that customers continue to have access to a range of options and value in the motor finance market.
Leasing Options stands ready to support and advocate for industry-wide changes that uphold customer interests while also preserving the vibrancy and sustainability of the sector.
Watch the two BVRLA sessions
Click this link to view the Thursday and Friday sessions. There’s also a hub on the BVRLA website with more on Commission Disclosure. Members will need to sign in to access the information.
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Ralph Morton is the leading journalist in the leasing broker sector and editor of Broker News, the website which provides information and news for BVRLA-registered leasing brokers. He also writes extensively on the fleet and leasing market in both the UK and Europe.
