CONSUMER FINANCE: An Introduction

Overview

Never before has the consumer finance lawyer been in such demand. The ever-increasing activity of claims management companies, the use of highly directed marketing campaigns and innovative legal funding arrangements continue to contribute to significant levels of activity on the litigation front. Fintech innovations, the profits offered by debt sales and investments and the appetite for new products aimed at gaps in an unpredictable economic market have also resulted in a boom in non-contentious business. This is a practice area that is here to stay.

Consumer finance is complex and quasi-commercial in nature, with a significant cross-over between banking, consumer and consumer credit law. The expertise of a pure banking or commercial lawyer is insufficient to deal with the intricacies of the consumer finance world. Specialists in consumer finance, who understand the complex consumer credit landscape, and how courts treat such cases, are required to sit at the cross-roads between banking and consumer law. They are required to deal with everything from the tsunami of bulk litigation at one end of the spectrum, to the non-contentious innovations at the other end. One only needs to look to the rise of fintech, with cryptocurrency being a good example, to appreciate the need for a specialist.

Hot Topics

The advent of tech disruptors moving into the consumer finance space, bringing both online offerings and novel products, has created many opportunities for consumer finance lawyers. The fall-out from Wonga (the original tech innovator in this space) is now in the rear-view mirror, but it is a good reminder of the lack of expertise newcomers have in comparison to that historically held by traditional money lenders. Consequently, tech disruptors are well advised to seek proper consumer credit advice. Involvement of consumer finance lawyers is necessary from the product development stage, through to dealing with enforcement and customer complaints. Recent trends include a notable uptick in the use of open banking in fintech to assess affordability, and the rise of so-called “finfluencers” inviting high-risk consumer investments in crypto-assets and contracts for difference. 

Debt sales and securitisations are still big business, with private equity and venture capitalists continuing to realise the scope for good returns. Such deals necessitate detailed reviews of previous compliance with consumer finance legislation and an insight into potential consumer challenges. Appropriate advice at this stage may avoid a hefty bill if bulk litigation subsequently snowballs.

Green finance continues to be a big-ticket item, with consumer finance lawyers dealing with everything from the private financing of green home products, such as solar panels, ground source heat pumps and batteries, through to the fated green deal scheme, which continues to generate complaints to the Financial Ombudsman Service (FOS) and litigation through the Tribunals. This is certainly an area to watch, particularly given the recent launch of the government’s Great British Energy, the record-breaking budget for delivering new homegrown clean energy projects in the UK and the onward impact on green consumer finance.

The importance of FOS decisions, particularly where bulk litigation is involved, continues to be felt in the consumer finance arena. The FOS is increasingly using test cases to manage its workload in the context of bulk litigation, and so early advice on submissions to the FOS on the appropriate way to deal with consumer complaints is paramount. This is particularly important given the difficulties in overturning FOS final decisions, as highlighted last year by R (on the application of Shawbrook Bank Ltd) v FOS, which upheld the FOS’s decision in the context of timeshare mis-selling claims. It may come as a surprise to the unsuspecting client that the FOS, unlike courts, is not bound to follow the law.

2024 has been the year of increased attempts to turn consumer finance litigation into group litigation. There are several potential drivers for this, including the newly introduced fixed-costs regime, the creation of the new intermediate track as a carve-out from the multi-track, the FOS’s proposal to charge claims management companies and other professional representatives fees to make complaints, and the attraction of attempting to reduce ever-increasing court fees. Group litigation orders have been made in the "Dieselgate" car emissions litigation, which includes claims against finance companies. An application for a proposed payment protection insurance group litigation order awaits determination. Appeals in the context of motor commission claims on the appropriateness of issuing multiple claims on a single claim form, thereby reducing court fees, also await determination, and the shared appreciation mortgages litigation saw over 140 claims being brought together in a single case. Traditionally, consumer finance disputes require decisions on the facts of an individual case, and so it remains to be seen whether group litigation will take off.

Last but not least, commission, in all of its forms, has moved into first place as the lead generator of work in this area. As previously predicted, following the petering out of payment protection insurance claims, motor finance commission claims have flooded in. Courts have adopted different approaches, but the trend in the last few months has been for cases to be stayed pending the imminent Court of Appeal decision in Hopcraft, Wrench and Johnson. The widely predicted subsequent trip to the Supreme Court is expected to trigger either a deluge of revitalised cases, or further stays. A keen eye also needs to be kept on the upcoming judicial review of a FOS test case on motor commission, and the outcome of the Financial Conduct Authority’s review of the historical use of discretionary commission arrangements.

Legislative Reforms

The long-awaited reforms to the Consumer Credit Act 1974 (CCA), remain outstanding. The previous government’s July 2023 consultation response confirmed plans to overhaul the CCA by moving as much as possible of the regime into the Financial Services and Markets Act 2000 (FSMA) model, with a repeal and recast approach proposed. The plan to simply “lift and shift” echoes the 2014 approach taken when moving swathes of the CCA, including the licensing regime, into FSMA and the FCA Handbook. Experience has shown that such an approach, resulting in tweaks in phraseology and definitions to ensure consistency within the FSMA regime, can, within the highly technical consumer finance regime, create problems. The second consultation, which was awaited in 2024, has not yet featured in the new government’s agenda.

Conclusion

Underestimate the complexities of consumer finance at your peril. Bulk claims such as PPI and motor commission have caused many to dabble in this area. However, experts with a detailed understanding of the whole regime, how it has changed over time, how it relates to innovative new products, and the interaction between banking and consumer law, are of vital importance when advising on consumer finance.