7:26 am, November 2, 2024
The Court of Appeal judgement on car finance commission payments to dealers has bolstered claims management firms looking for recourse for consumers.
While the chaos this week that came from lenders pulling their products from the market was bad enough, the storm coming from the circling claims management firms could be even worse.
Car finance firms have been concentrating on getting their systems in line with the law since Friday by either removing commission payments completely from deals or clearly laying out what commission dealers will be paid.
These disclosures have to be clear and made in a ‘timely’ manner to customers – and they have to sign to say they agree with them.
While that might fix the problem going forward, it doesn’t solve the historical commissions deemed ‘secret’ payments by the court.
Analysts and experts have been lining up to tell national newspaper reporters this could be ‘the next PPI’.
This weekend, papers are awash with a ‘scandal’ that could cost banks billions. Already, many financial institutions have put aside cash in case they have to pay out claims for commission payments consumers didn’t know about.
The Finance Commission Story So Far
- FCA needs to answer serious questions over car finance Court of Appeal decision
- Car finance slowly starting up again as lenders change systems and some freeze commission payments
- Chaos: Car finance grinds to a halt in wake of Court of Appeal decision
- Close Brothers stops underwriting new dealer finance after court ruling
- FCA chief executive calls for clarity over motor finance judgement
- Car finance pauses as banks figure out legal implications – who has stopped lending?
- Honda ‘pulls car finance and delays customer handovers’
- FLA: Court of Appeal ruling was ‘very unexpected’ but ‘welcome’
Ever since the Financial Conduct Authority announced a review of the commission payments in January – an investigation that is still ongoing and delayed until next year – banks have been stashing cash in case of payouts.
Lloyds has set aside £450m and Close Brothers some £250m. Experts at Shore Capital said before the court case that claims could cost the industry £16bn, now they believe it could be far higher.
‘Whether it could get to the PPI total of £50bn, I don’t know.’ Gary Greenwood from the firm told The Times today.
Another analyst predicted a £3.2bn bill for Lloyds (the firm behind Black Horse), £1.4bn for Santander, £400m for Barclays and as much as £320m for Close Brothers.
Customers are already piling their claims up against the banks, fuelled by online adverts and consumer expert Martin Lewis’ predictions this latest court ruling presents a ‘seismic change’ that ‘makes payouts more likely’.
While the advice given to car dealers and banks up until now, by the FCA no less, was that they didn’t have to disclose the commissions, this ruling in the Court of Appeal says they should have.
The case against Close Brothers and MotoNovo Finance could now go to the Supreme Court, but as yet we don’t know if the court will hear the appeal and, even then, it could take months.
The FCA wants a quick decision so at least everyone knows where they stand and if payouts are needed, firms will know the rough size of them.
Martin Lewis launched an online tool to help consumers lodge complaints and some 2.4m people already have. If the floodgates are opened, and the first payouts made, that number will surge considerably.
‘Does anyone know how much commission a dealer got on a finance deal on their last car?’ asked one car dealer we spoke to this week.
‘They don’t and if it’s decided that they should have been told then payouts are inevitable. How far back car buyers are allowed to claim for is also unknown. This could be huge.’
Some fear customers could make claims for unknown commissions paid to dealers going back decades.
As it stands the FCA is still investigating the car finance commission payments and are set to take into account the comments made by the judges in the Court of Appeal case. It’s unlikely to report its findings until the end of next year, though.
Until then the car industry will be forced to change its practices to comply with the law and worry about the payouts at a later date.
But who is on the hook for the payouts? Some experts say dealers are potentially at risk, but Shore Capital’s Greenwood expects the cases to be aimed at the banks.
Currently consumers are being told to sit tight and car finance firms are steadying themselves for potential payouts that could costs billions.
‘What is ironic is that this could actually be a positive for car dealers in the long run,’ said one very optimistic car dealer group boss.
‘The PPI scandal gave consumers payouts of thousands they weren’t expecting and many of them ended up using that money for, ironically, a down payment for a new car.
‘I wonder if there are payouts made in the same way in the coming years for car finance commissions whether customers will be straight back into dealers to spend it on a new motor.
‘You’ve got to look on the bright side…’
