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British commissions ruling could be ‘seismic’

Lawyers at Mason Hayes & Curran (MHC) say that an upcoming ruling by Britain’s Supreme Court could have an impact on the commission structures in the motor-finance industry in Ireland. 

Britain’s highest court recently concluded its hearing of an appeal concerning the use of discretionary commission arrangements (DCAs) in motor financing. A ruling is expected in July. 

The case follows three linked English Court of Appeal judgments last October, which found that certain commissions paid to car dealerships for arranging loans were unlawful.

Commission structures 

In a note on the firm’s website, the MHC lawyers say that the regulatory framework in Ireland differs in key respects from that in Britain. 

Nevertheless, they add, the outcome of the British Supreme Court’s decision could have “a seismic effect” on commission structures across the industry. 

“If the English Court of Appeal’s ruling is upheld, the judgment may extend beyond motor finance and potentially affect commission structures in other areas of consumer finance as well,” the lawyers state. 

DCAs are financing arrangements where a lender pays a credit intermediary a commission that can change, depending on the interest rate the consumer is charged. 

In addition, the intermediary is given latitude to set the interest rate paid by the consumer. 

“In short, therefore, the higher the interest rate agreed with the consumer, the higher the commission paid to the intermediary by the lender,” the MHC lawyers explain. 

Central Bank ban 

In Ireland, the Central Bank has banned DCAs, due to concerns about potential conflicts of interest. 

In Britain, a 2021 ban on the practice has led to a flurry of proceedings by customers seeking recovery of commissions paid to intermediaries in connection with their lending arrangements. 

The MHC lawyers note that the English Court of Appeal found in favour of three consumers in test cases where they bought a vehicle through a motor dealership, which acted as an intermediary. 

“Clearly being aware of the potential for its ruling to lead to significant consequences for lenders, it asked the UK Supreme Court to give guidance on when a lender can be held liable for the payment of a commission,” they state. 

Little case law in Ireland 

The MHC lawyers believe that, should the British Supreme Court uphold, even in part, the judgment of the Court of Appeal, it could have “a significant impact on commission arrangements, extending beyond motor finance”. 

Noting that Ireland has little case law relating to key aspects of the Supreme Court’s judgement, MHC says that there will be significant scope for argument in Ireland as to the relevance and applicability of the ruling as a matter of Irish law. 

“That said, English precedents generally have some level of persuasive effect before Irish courts, so the judgment is likely to have some impact here,” the firm’s lawyers add.