New Disclosure Obligations and Testing Consumer Understanding

You’d have to have your head buried very deep in the sand, if you’re in our industry, not to have heard about the landmark decision in the Johnson case, handed down on 25 October 2024.  We’ve talked about that case several times, so we won’t recap it here.  It’s enough to note that the case heads to the Supreme Court this spring. 

Until then, however, the FCA has recently made clear that dealers need to do more than simply redraft their disclosures.  They need to be actively testing consumer understanding of those disclosures.  In this edition of MILS Matters, we’ll talk through why testing matters and how you can start doing it.

Why Consumer Testing Is Essential

As we head into 2025, norms about what consumer protection requires are shifting.  As we’ve mentioned elsewhere, consumer protection is no longer about static measures aimed at disclosure followed up by penalties only if a consumer complains.  Regulators are beginning to see consumer protection as an ongoing and iterative process that requires constant vigilance and refinement.

So, it’s not enough anymore to think that a customer “must have read and understood” information scattered in terms and conditions that, frankly, no one reads. Whatever else Johnson means, it has effectively cautioned that “burying information in the small print” won’t cut it.  The FCA, in the wake of the Court of Appeal’s decision, has doubled down, indicating that it expects firms to take a proactive stance to ensure that customers know what they are getting themselves into when it comes to commissions.

The bottom line: if you merely rely on disclaimers and generic statements—however well-intended—you probably won’t meet the regulatory threshold. The FCA wants to see evidence that key points have been communicated in a manner customers can actually digest and act upon.

Testing through surveys, focus groups, or one-on-one interviews can help you validate whether your disclosures are doing their job.  More importantly, these methods might uncover any areas where customers are confused or uncertain, giving you the chance to refine your approach before problems arise. By engaging directly with customers, firms can gauge:

• Whether the language used—especially around commission structure—truly resonates.

• If the timing of disclosures (for instance, presenting the information early versus late in the sales process) affects how well customers comprehend the details.

• The impact of any special features in your business model—like discretionary commission or first-refusal obligations to lenders—on the clarity of your messaging.

Whatever ultimately happens with Johnson, the brave new world we’re in won’t likely go away: evidence of consumer testing and continuous refinement counts as strong proof that you’re committed to ensuring customers understand and comprehend key information. Accordingly, this testing should not be seen as a one-off exercise, but rather as an ongoing, iterative process that helps you build a buffer around your practices in case of a later consumer complaint.

Methods of Testing Consumer Understanding

When it comes to testing consumer understanding, there’s no one-size-fits-all solution.  You can experiment with a variety of approaches.

Surveys and Questionnaires

After initial disclosure materials are drafted, you could roll out short surveys to a sample group of new or prospective customers. These surveys could probe whether customers recall certain details, such as how commission gets calculated, or whether they know that commission is paid at all. Because many consumers have limited financial numeracy, you should take care that any survey uses plain language and asks direct questions.

Pilot or Focus Group Sessions

Sometimes, a small live session—virtual or in person—can offer the most direct feedback. By walking participants through the proposed disclosure documents and then inviting discussion, you can glean real-time insights into what people notice, where they stumble, and what they consider important.

Post-Transaction Check-Ins

If feasible, you could reach out to customers soon after the agreement is signed, inviting them to answer a few short questions about their understanding of the commission arrangement.  Of course, you might already be doing post-transaction check-ins with your customers, making sure that they’re enjoying their vehicle.  If so, this could be a good opportunity to add a couple of quick questions about commission disclosures.  There’s no need for commission disclosure testing to be in a stand-alone process.

Key Considerations for Effective Testing

Whatever approach or combination of approaches you take, you want to think about your sample set carefully. 

To get a meaningful picture, your test group should represent the diversity of your real customer base.  In particularly, you want to think about vulnerable customers, being particularly sure that you’re treating them fairly. If you regularly serve customers with disabilities, language barriers, or other specific needs, ensure your testing accounts for how well disclosures work in those contexts.

Finally, think about testing the clarity and timing of disclosure, not simply the content of the disclosure.  Providing commission details only at the final signature stage may come too late to inform a meaningful choice. Many firms are sharing commission information at multiple points—quote, proposal, and agreement stage—to give consumers time to digest and compare.  But it’s also possible that there’s disclosure overload.  Your testing should consider this as well.

Record-Keeping

The FCA expects firms to maintain a record of their testing activities and any improvements made as a result. Detailed internal documentation can demonstrate good-faith efforts to communicate effectively and highlight that your processes are continually evolving to meet regulatory standards.

Implications for Brokers and Lenders

Under the Consumer Duty, responsibility for good customer outcomes is shared along the distribution chain. This means that brokers and lenders must collaborate on effective disclosure strategies and co-ordinate testing where possible. If the lender’s documents reference commission in a way that differs materially from how the broker explains it, customers might end up confused.

We’re advising you then to feed back any testing results or customer queries to the lender. Lenders, in turn, should integrate this feedback into their own communication materials. Ongoing communication and alignment between broker and lender reduce the risk of inconsistent messaging that could expose either party to regulatory scrutiny or consumer complaints.

How We Can Help

At MILS, we routinely advise motor retailers on refining their compliance practices, ensuring they align with both legal standards and the FCA’s expectations. We can give you strategic guidance and advice as part of your standard retainer.

If you want a more bespoke and hands-on review, we offer separate packages that can help you draft consumer-friendly communications, run pilot testing exercises, and guide your team on how to capture and implement test feedback. We understand that time has been short for many dealers trying to adapt swiftly to the Court of Appeal’s judgment and the Consumer Duty’s demands. Yet it is precisely in these circumstances that thorough testing of consumer understanding can save untold headaches—and potential liability—down the line.

In short, if you would like support designing or analysing your consumer surveys, focus groups, or other testing methods, we can provide tailored assistance. We can also help you document your compliance efforts in a way that give you the best chance to stand up to scrutiny, whether from the FCA or any subsequent legal challenge.

Looking Ahead

The Court of Appeal’s decision in Johnson has put the focus squarely on informed consent. Yet the spirit of the FCA’s Consumer Duty goes even further, ensuring that customers not only “receive” but truly understand what they are being told. Engaging in thoughtful, methodically designed consumer testing is the best way to validate that your communications strategy meets the mark—and to demonstrate a genuine commitment to fairness and transparency.

By making consumer testing a routine part of your compliance toolkit, you put yourself on a firmer footing for both current transactions and potential future audits or complaints. Robust testing methods, combined with a willingness to adapt and improve based on real consumer feedback, will be a key differentiator between compliance as box-ticking exercise and a genuine source of trust and competitive advantage.