By Lewis Adamson, Geldards, associate sponsor of the VRA Seminar 2022
There is an ever-increasing flurry of activity in the automotive sector, with many automotive retailers and finance providers receiving a significant number of claims from individuals, alleging that a “secret commission” was paid to the retailer, by a finance provider.
The trend seems to be that retailers and finance providers will first receive a request for information/details of commission, from law firms acting on behalf of customers who have purchased a vehicle pursuant to a hire purchase agreement. This is then followed up with a Letter of Claim, and lately, we have seen an increasing number of County Court Claims being issued against automotive retailers and finance companies.
What is a Secret Commission?
There are two types of “secret commissions”, a fully secret commission and a half secret commission. A fully secret commission refers to a commission that was paid by a finance house, to a broker, agent or introducer, without any knowledge of the customer. A half secret commission is a commission that is paid with knowledge of the customer, but without knowing the details of the amount of commission.
What is the Claim?
The claims being pursued by individuals centre around the way in which the commission structures are set up between the retailer and finance provider. It is a common feature that claims are pursued where the retailer had a discretion to negotiate on the rate of interest and where the customer was not made aware of it, or that a commission would be paid.
As a result, it is alleged that the relationship between the creditor is unfair for the purposes of sections 140A to 140C of the Consumer Credit Act 1974, that the retailer is impartial, and that the failure to inform the customer that a commission would be paid, amounts to a breach of the Rules contained in the Consumer Credit Sourcebook (“CONC”). In some instances, we are seeing claims alleging that a fiduciary duty existed between the retailer and the customer.
Is there any Defence?
Each case depends on the facts of each transaction, but we have found that it is usual that a customer would be made aware that a commission “may” be paid to the retailer. The customers allege that “may” is not sufficient to amount to a disclosure and therefore the commission paid is fully secret. However, what constitutes a fully secret commission is a developing area of law which requires a full legal analysis of the transaction, and we are working alongside leading counsel on this point as these types of claims progress.
However, customers are usually aware that they may be a commission and there is no requirement under the CONC rules for the dealership to go further and explain how confidential commercial agreements between retailers and finance houses are structured in terms of commission and it is up to the individual to request details of any commission to be paid, as is stated in the CONC itself.
Whether or not there has been a financial loss, is also a question which requires an analysis of all the evidence. In stark contrast with the leading case on secret commissions (Wood v Commercial First Business Limited  EWCA Civ 471), most retailers within the automotive industry do not have access to the entire financial market, do not offer financial advice and are not paid for their services. It is open to customers to source finance elsewhere should they wish to do so and the introduction to a finance company by a retailer is ancillary to their business of selling motor vehicles. When determining any loss, it is helpful to bear in mind that it is not simply a question of whether a better deal could be obtained elsewhere, but whether that individual customer could have been offered a better deal by the retailer and as such, suffered a financial loss.
I have received a claim, what should I do?
This is a developing area of law and if you have received a claim, you should contact Geldards where our team of expert automotive solicitors can assist in reviewing the facts and advising on the legal position, the strategy to be adopted and the best defence which may be available.
If you have not received a claim, in order to minimise the risk of any future claims, it may be worthwhile conducting a review of your current processes to ensure all aspects of CONC are complied with, and consumers are fully informed as to the nature of the transaction, in accordance with the relevant laws and regulations in place. We expect these claims to increase in number and become more prevalent in the future, as claimant firms are actively seeking customers who have been sold a vehicle on finance.