The recent Court of Appeal decision in Johnson v Firstrand (trading as MotoNovo Finance) is a landmark victory for claimants, particularly consumers who relied on dealerships and finance brokers to provide fair terms in car finance agreements. This case highlights the need for transparency in finance arrangements and sets an important precedent in cases where commissions paid to brokers were not fully disclosed to the consumer.
Background: What Happened in Johnson v Firstrand?
In this case, Johnson, the claimant, purchased a car financed by a loan arranged through his dealership by Firstrand Bank (MotoNovo Finance). Unbeknownst to Johnson, the dealer received a significant commission from Firstrand as a part of the financing agreement. Johnson argued that the dealership had failed to fully disclose this commission arrangement, which had impacted the terms of the finance offered to him.
A Groundbreaking Ruling
The court sided with Johnson, noting that Firstrand and its brokers had not taken sufficient steps to make the commission disclosure clear to Johnson in a way that would have allowed him to make an informed decision. The decision highlighted that consumers should not only be made aware of commissions but also understand how these may affect the terms of their agreements.
The Court’s recognition that consumers have a right to know when financial incentives may impact the impartiality of a broker or dealer creates a new standard for fairness in similar cases. For consumers, this ruling offers reassurance that hidden commission agreements that might unfairly inflate their costs could be grounds for redress.
Key Points of the Ruling
- Transparency in Finance Agreements: The ruling emphasised that brokers have a “disinterested duty”—meaning they must provide impartial information that prioritises the consumer’s best interests unless clearly disclosed otherwise.
- Disclosure of Commission Payments: The court made clear that partial or vague disclosure of commission payments is insufficient. Claimants deserve to know the full details, particularly if the amount of the commission affects the finance agreement.
- Right to Fair Terms: The court’s decision further underscores that consumers who do not receive complete information regarding commissions are at a disadvantage. This decision grants them the ability to challenge such agreements and seek equitable remedies.
Moving Forward
For consumers, Johnson v Firstrand is a step toward greater protection and transparency in financial agreements involving brokers. It strengthens the case for individuals who feel misled by hidden commissions and unfair loan terms. As a claimant, understanding that the court will support fairness in financial arrangements offers a pathway to achieving justice.
Jamie Patton, Managing Director at Johnson Law Group, who supported the Claimants in the Court of Appeal, said:
“This is a resounding victory for Claimants who were unwittingly charged secret commissions and a vindication of the law firms representing them who have been “fighting the good fight” for the last 3 years – often with unfounded criticism from the Court and the Financial Ombudsman Service (FOS).
“The landscape of financial claims MUST now change. The FCA, who has deliberately excluded fixed fee commissions PCP cases from its proposed redress scheme must now re-assess its position. I also feel FOS should publicly apologise for the completely unjustified criticism of claimant lawyers it has made over the last 24 months for alleging fixed fee claims are “claims without merit and a waste of its resources” when all along they were indeed valid. FOS’s justification to implement application fees has now completely disappeared off the back of this victory and any attempt by it to bring in such a rule change should be viewed as nothing more than an unlawful imposition of a barrier to access to justice and should easily be overturned in a judicial review.
“The FCA, FOS and the Government should all now stop cowing down to the influence of the banks and focus on safeguarding the rights of the consumer – and their right to be legally represented!”
Kevin Durkin, Managing Director of HD Law, who ran the appeal for Johnson, said:
“This unanimous judgment from the Court of Appeal in these test cases is both emphatic and clear. It represents a massive win for consumers who have bought motor vehicles on finance and seek compensation from the lender. In certain circumstances consumers could even be entitled to have their motor finance loans unwound.
“For too long certain lenders were turning a blind eye to the underhand practices of car dealers in not telling consumers about these commissions, which were paid as a financial reward to dealers for tying customers in with lenders.
“It is no longer enough for lenders to hint at the vague possibility of a commission being paid and deliberately bury it away somewhere in their small print, within their standard terms and conditions. That practice by lenders was clearly designed to keep the customer unaware of the payment of a commission and the Court of Appeal have quite rightly agreed.
“The Court of Appeal’s clear detailed judgment has also established that was is the dealer’s duty to disclose such crucial information to their customer, that the lender may be liable at common law or in equity for the dealer’s breach of that duty, and that the lender’s own failure to disclose the commission may render the relationship between it and the consumer “unfair” under ss140 A–C of the Consumer Credit Act 1974.”