FirstRand fights back: UK vehicle finance disclosure battle escalates

FirstRand will appeal to the UK's Supreme Court and argue that motor dealers do not owe customers fiduciary duties or any other duty around providing advice, recommendation, or information on an impartial basis.

FirstRand will appeal to the UK's Supreme Court and argue that motor dealers do not owe customers fiduciary duties or any other duty around providing advice, recommendation, or information on an impartial basis.

Published Oct 27, 2024

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The share price of financial services group FirstRand slid nearly 3% on Friday after it announced its decision to appeal a recent UK Court of Appeal ruling regarding commission disclosure practices in motor finance agreements.

The share price ended Friday 2.78% lower on the JSE at R80.69.

FirstRand will appeal to the UK's Supreme Court and argue that motor dealers do not owe customers fiduciary duties or any other duty around providing advice, recommendation, or information on an impartial basis.

This judgment follows two pivotal cases—Wrench and Johnson—where the court ruled that FirstRand’s disclosures were insufficient for customers to make informed decisions about the commission payments to motor dealers.

FirstRand operates in the UK via its Aldermore specialist lender and savings bank, which owns a UK vehicle finance business MotoNovo.

The cases concern the MotoNovo “back book” finance agreements, which reside in FirstRand’s London branch, and form part of a larger industry review by the UK’s Financial Conduct Authority (FCA).

“We believe our practices were compliant with the legal and regulatory standards in place at the time,” said FirstRand.

The group has raised a pre-tax provision of R3 billion for the year ending June 30, 2024, as part of ongoing prudential measures and to address possible legal risks from further claims.

FirstRand argues that motor dealers should not owe customers fiduciary duties. “Lenders and motor dealers have always operated on an arm’s length basis, with dealers primarily focusing on vehicle sales rather than offering impartial financial advice,” the company said. This aspect of the judgment, according to FirstRand, introduces substantial risks for the motor finance and broader consumer finance sectors in the UK.

In the Wrench matter, even though the payment of a commission was disclosed in London branch's terms and conditions, and London branch had imposed contractual obligations on the dealer to disclose the commission to the customer, the court found that this was still inadequate to ensure the customer was aware that a commission was paid.

In the Johnson matter, it was accepted that London branch had disclosed commission would be paid to the motor dealer. However, the court found that the disclosure was inadequate for Mr Johnson to give informed consent and should have gone further, and beyond regulatory requirements.

FirstRand said it was concerned over the potential industry-wide impact of the judgment and is actively engaging with regulatory authorities in both the UK and South Africa.

“The disclosures made were neither hidden nor kept secret,” FirstRand said, saying the group will continue to defend its position and undertake to update shareholders as and when it is able to provide further clarity.

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