The FCA’s Review of Unfair Commission Payments in the Johnson Case
The Johnson case brought to light the issue of unfair commission payments in loan agreements, prompting the Financial Conduct Authority (FCA) to launch a comprehensive review. The case highlighted the importance of considering the value and nature of commission payments in relation to loans, particularly when these payments are not disclosed to the consumer, as was the case with the 55% commission in Johnson.
In response to the Supreme Court’s decision in the Johnson case, the FCA is now tasked with determining what constitutes an unfair commission payment and how to calculate appropriate compensation for affected consumers. The FCA will take into account the harm suffered by customers while also ensuring that affordable vehicle loans can still be offered in the market.
While the FCA estimates that most claimants will receive less than £950 in compensation per finance agreement, additional interest of around 3% per year will be added to the final amount. This ruling has had a significant impact on the financial sector, with major banks seeing a surge in their stock values as the size of the compensation bill they face has been reduced.
However, challenges lie ahead for both lenders and the FCA, particularly in relation to older finance agreements dating back to 2007. The task of producing relevant documents for these agreements is daunting, and the complexities of the redress scheme have raised concerns within the industry.
Philip Salter, a former FCA director, emphasized the operational and financial challenges that firms will face in implementing the FCA’s requirements. He noted that assessing historical loan books against the FCA’s criteria for unfairness will be a complex and labor-intensive process.
Some industry experts, like John Phillipou of the Finance and Leasing Association, have raised doubts about the feasibility of proving consumer loss in the redress scheme. While the goal is to ensure fairness for consumers, the practicalities of demonstrating financial harm may prove to be a significant hurdle for lenders.
