In depth: Lawyers cut out as FCA tries to close motor finance floodgates

For most solicitors, victory in the Supreme Court would represent a career landmark and potentially an opportunity to run other similar cases. But for Kevin Durkin (pictured below), director of Bradford firm HD Law, the long-awaited decision in the dispute over hidden commissions in motor finance deals may have the opposite effect. HD Law won the case on behalf of Marcus Johnson, successfully arguing in the highest UK court that the relationship between him and lender FirstRand was unfair because of the size of the commission and the concealment of the commercial ties with the car dealer.

Such cases often prompt predictions of floodgates opening, but the City regulator is desperate to keep them shut, immediately announcing plans for a fixed compensation scheme. Nikhil Rathi, chief executive of the Financial Conduct Authority, told MPs this week that consumers should not seek legal advice. ‘If you are concerned, you should contact your lender and complain now,’ he said. ‘You do not need to use a claims management company or a law firm that may take up to 30% of any compensation that you are due.’

The anti-lawyer rhetoric was taken up a notch on Friday when the FCA launched a £1m campaign specifically intended to telling motor finance customers they do not need to use a CMC or law firm. Over the next two months, a number of influencers will be posting information for consumers on their social media channels, including Instagram and TikTok. Online video and radio ads will launch in October. 

Durkin watched the Treasury Select Committee evidence session and was aghast at a regulator effectively urging consumers not to seek independent legal advice. ‘I can’t imagine any other circumstance in which people would be told not to take professional advice,’ he told the Gazette. ‘Instead, consumers are being told to rely on a scheme which has not yet been drawn up and to trust in a regulator which failed to prevent the harm in the first place.

‘Will the FCA have consumers’ rights at the forefront when it designs this scheme, or will they be under-compensated? There will be no way for claimants to know whether they are being treated fairly.’

HD Law was first instructed by Johnson in September 2022. The firm represented him through four hearings in less than three years on a no win, no fee basis against a wealthy financial institution.

Durkin said it was disheartening after all the work his firm did to secure a positive result, to then be sidelined and made redundant in the process. After all, without this claim, there would be no compensation for anyone. Despite the FCA’s pledge to speak to all stakeholders, there has been no contact with HD Law about the proposed compensation scheme.

The FCA has said it will be ‘firm and assertive’ with any claims management company under its regulatory umbrella making exaggerated promises about the compensation consumers should expect. Rathi said there has been ‘high-pressure advertising’ from some CMCs and law firms promising payouts of £4,500 (the FCA estimates average compensation will average £950).

Around 400 promotions by CMCs have been removed or amended since last year for being unfair or inaccurate.

But Durkin says the rhetoric about law firms – even extending to the suggestion clients should cancel their retainers – is unfair on legitimate practices which are, after all, regulated.

‘HD law has always specialised in representing claimants through civil litigation, having succeeded in the Court of Appeal three times and the Supreme Court twice on consumer-led cases,’ he added. ‘We will continue to offer advice and protection to consumers down this viable and established route, as this currently best serves clients’ best interests.’

The FCA will publish its consultation in the coming weeks and expects a ‘critical mass’ of compensation claims to be dealt with in 2026. It has yet to decide whether the scheme will be opt in or opt out.

Following the Supreme Court decision, the regulator insisted it would ensure compensation claims were handled ‘consistently, efficiently and fairly’. It added: ‘We will continue to act against firms using clickbait-style promotions or language that suggests a guaranteed outcome before any investigation into a consumer’s claim has taken place.’

The Solicitors Regulation Authority has also said it is monitoring firms working in the motor finance commission claims market. It added that lawyers have a duty not to mislead clients, to get their explicit consent, to explain cost information clearly and to share information on free alternative routes for redress.