Last week’s landmark ruling on the disclosure of car finance commissions was ‘very unexpected’ but is ‘welcomed’, the UK’s leading finance trade body has said.
On October 25, the Court of Appeal found in favour of three consumers fighting cases against finance firms Close Brothers, Firstrand Bank and Motonovo. The complainants said they were mis-sold motor finance products.
The court ruled that a broker, such as a car dealer, could not receive commissions from the finance lender without disclosing the amount and how it would be calculated to the consumer.
It led Close Brothers to immediately halt the underwriting of finance products for car dealers, while Honda Finance and Motonovo made similar announcements at the beginning of this week. Lloyds Bank, owners of Black Horse and Lex Autolease confirmed it was ‘assessing’ the ‘potential impact’ of the ruling.
BMW Group-owned Alphabet is also thought to have halted financing, and is in contact with its partners.
Finance business is on pause at many lenders as they work overtime to implement changes to the way they operate.
According to the UK’s leading trade body for the consumer, asset and motor finance sectors, the Finance and Leasing Association (FLA), less than 10 of its members have paused lending, although around another 40 have not made any announcements.
Speaking to Car Dealer, director of motor finance and strategy at the FLA, Adrian Dally, said the ruling was a shock.
‘It was a very unusual type of judgement to happen and it was very unexpected,’ he said.
‘Until Friday, the network assumed that we’ve got a regulator – the Financial Conduct Authority (FCA) – and they have lots of rules on lots of things, including commissions and disclosure. And I think everybody had assumed that it’s kind of inherent in the concept of a regulator that it makes rules that go beyond the law. They put rules in addition to the law, and therefore, if those rules are about a specific subject like commissions, then that’s a good thing, and it complies with the law.
‘But with the Court of Appeal judgement, it shows that actually, historically, the regulator rules were less than the law. So, the Court of Appeal has interpreted that by complying with the regulators’ rules that wasn’t sufficient to comply with the law.’
The Finance Commission Story So Far
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- ‘Chaos’: Car finance grinding to a halt in wake of Court of Appeal decision – but what happens next?
- 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’
He added: ‘It’s very rare that this happens – but it has happened, and the network is now furiously working to put in those two new aspects of disclosing the amount of commission, and getting a process for customers to give informed consent to that.’
While it’s been a shock to the motor trade, the court’s decision to make the selling of finance products more transparent has been welcomed by the FLA.
‘We’re comfortable with full provision disclosure, and always have been. And to be honest, we always felt this was the way it was going to go anyway. It just happened somewhat suddenly.
‘We’re comfortable with the idea where customers are getting accurate information about the different elements of their deals. You get trust and then you get consumer confidence. And where you’ve got trust and consumer confidence, customers buy and they come back in the future.’