The recent Court of Appeal decision in the cases of Johnson, Wrench, and Hopcraft marks a significant development in the realm of financial law, particularly concerning car finance commission payments to third parties.
Coby Benson, solicitor at Bott & Co, offers an in-depth analysis of how the Court’s judgment expands legal protections for borrowers, shedding light on what lenders must disclose about third-party commissions.
Secret and Half-Secret Commissions Explained
Before the landmark Johnson case, established law categorised third-party commission payments as either “Fully Secret” or “Half Secret.”
Understanding these classifications is key to grasping the implications of the Court’s recent ruling:
| Type | Description | Remedy |
|---|---|---|
| Half-Secret Commission | The borrower is informed that a commission may be paid to a third party but does not know the exact amount. | (1) Reimbursement of the commission amount plus interest. |
| Fully Secret Commission | The borrower receives no disclosure regarding the commission. | (1) Reimbursement of the commission plus interest; (2) Rescission of the agreement, restoring interest paid. |
In essence, the distinction lies in whether the borrower was given enough information to provide fully informed consent. A Half-Secret Commission discloses the potential for commission but not the exact amount, while a Fully Secret Commission provides no information about the payment at all.
The Impact of Johnson v Close Brothers
The crux of the Johnson decision lies in expanding the definition of “Fully Secret” commission. The Court of Appeal ruled that if a lender buries disclosure of a commission payment within dense terms and conditions, where it is unlikely the borrower would read it, the commission can now be considered Fully Secret. This significant interpretation (paras 108-119) means that lenders can no longer rely on simply embedding such disclosures in their terms and conditions.
In essence, if the disclosure’s placement renders it effectively hidden, it may constitute a Fully Secret Commission. This interpretation increases lenders’ liability because more cases now qualify as Fully Secret, entitling borrowers to both commission reimbursement and rescission, effectively nullifying the loan agreement’s financial consequences.
Case Outcomes for Johnson, Wrench, and Hopcraft
The Court of Appeal joined three claimants’ cases in this ruling, examining each situation individually:
| Type | Description | Remedy |
|---|---|---|
| Mr Johnson | The claimant went into the case conceding that it was half-secret, because the small print disclosed that commission might be paid (but not the amount). The court did not interfere with that concession, but indicated (para 112) that it may have considered it Fully Secret, in light of the significant extension of the law referred to above. | Reimbursement of commission (£1,650) plus interest. |
| Mr Wrench | Classified as Fully Secret because the small print disclosure was insufficiently prominent. | Remitted to County Court to determine exact award, factoring in commission reimbursement and rescission of agreement. Pending appeal to Supreme Court. |
| Ms Hopcraft | Classified as Fully Secret because the small print disclosure was insufficiently prominent. | Remitted to County Court to determine exact award, factoring in commission reimbursement and rescission of agreement. Pending appeal to Supreme Court. |
These decisions underscore that lenders must ensure commission disclosures are clear and prominent. When disclosures are obscured, borrowers may now claim both the commission amount and the financial effects of rescinding the agreement—such as the interest paid.
Why the Wrench Decision Matters
The Wrench ruling has introduced a powerful precedent, which will likely have widespread implications for lenders. By raising the bar for disclosure transparency, this decision could encourage fairer practices across the financial industry.
Borrowers now have additional grounds to challenge “hidden” commissions and may claim not only the commission amount but rescission, particularly in cases where commission terms were obscured.
Moving Forward
For lenders, Wrench signals the importance of revisiting disclosure practices. Simply embedding information in terms and conditions is no longer sufficient; instead, lenders must ensure such disclosures are accessible and clear to borrowers. For borrowers, this ruling represents a pivotal moment in the fight for financial transparency, allowing more leverage in cases where disclosure was insufficient.
The full Johnson judgment can be accessed here.
If you think you may have been mis-sold car finance, just add a few details to our mis sold car finance claims checker for us to find your car finance agreements. We’ll then tell you if you can claim and how much you might receive.
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