Key steps to take following commission disclosure ruling

What to do now

1) Identify Relevant Products

• Conduct a review to identify all finance products (leases, loans, hire purchase, software loans, stocking facilities, managed print service agreements among others) where commission or fees are paid to third-party intermediaries (e.g. brokers or dealers) resulting from introductions to customers (including individuals and businesses) by those third-party intermediaries.

2) Send Disclosure Letters and Obtain Consent

• Send disclosure letters detailing whether commission was paid and the amount if applicable, for all new finance agreements entered into, ideally as soon as possible after the Court of Appeal judgment on 25 October 2024.
• Seek written consent from customers to the payment of any commission or fees by lenders to dealers or brokers prior to the customer entering into that finance agreement.

What to do in the medium term

1) Update Agreements and Policies

• Update customer agreements and trading agreements with brokers and dealers to include specific references to the disclosure of commission and fees. Agree who will disclose the commission, how it will be disclosed, and who will obtain written consent from customers prior to the customer signing the agreement (how and when).

2) Map Customer Journeys and Enhance Transparency

• Map out the customer journey from introduction to broker/dealer to signing agreement with funder, including the entire lifecycle of the agreement through to termination and making final payments in the finance agreement. This process should identify weaknesses in current practices related to transparency and disclosure.
• Align practices with the FCA’s Consumer Duty obligations by ensuring all customer-facing materials and communications are clear, fair, outcomes focussed, and are not misleading, particularly in explaining the role of brokers, the existence of commissions and potential conflicts of interest.

3) Consider Complaints and Claims Approach

• Following the FCA announcing its intention to consult on extending the motor finance complaints handling pause to non-DCA claims, the industry anticipates a pause on customer complaints relating to commission for the wider asset finance industry.
• In the meantime, ensure:
  • customer services teams are aware of the situation and expected steps.
  • prepare template holding responses in line with existing responsibilities and regulations, as appropriate.
  • seek pre-action protocol response templates for the handling of multiple claims.
  • prepare an in-depth fact-finding journey through the business to understand who has paid what in respect of which products, to whom, and for what purpose, with all relevant customer documentation. Consider assembling a project team to manage and support this process where commission is a large part of past and or existing business to look back and forwards.
  • where gnarly fact pattern arises, consider instructing advisers early to protect position.
• It is hoped that The Supreme Court will review the case, although the judgment being overturned is not expected. The future of the industry as we know it, as well as the variety and value for money of funds for customers requires pragmatism.

What to do in the long term

1) Consider Online Portals or a Website Service

• Consider whether implementing an online portal or website service, along with other digital tools, could enhance the customer journey and foster a transparent and clear approach by tracking disclosure practices, ensuring consistent communication of commission details, documenting customer consent and flagging any non-compliance in real time.

By taking these steps, firms can proactively address the risks posed by the Court of Appeal decision and enhance customer trust.

If you require advice on the recent Court of Appeal Decision or your proactive or reactive response to it, please contact Natalie Coates or the Banking and Finance team.