10:41 am, October 28, 2024
Lloyds Bank is ‘assessing the potential impact’ of the Close Brothers court ruling which has seen other finance providers pause payouts.
The court ruling was announced on Friday and makes it unlawful for dealers to get a commission from lenders ‘without obtaining the customer’s fully informed consent to the payment’.
Shares in the FTSE 100 bank, who provides Black Horse Finance to car dealers, plunged following the ruling that dealerships must tell customers about any commission earned when they take out the loans.
This morning Honda Finance Europe announced it would be pausing payments and delaying handovers following the news.
Close Brothers also stopped underwriting new dealer finance following the ruling.
A company statement said this ruling ‘sets the bar higher’ for disclosure of commissions and added that it ‘notes the intention’ of the three firms involved to appeal this.
The timing of this ruling is particularly bad for the industry as commissions were already under scrutiny from the Financial Conduct Authority (FCA).
Some are concerned this could lead to more customers seeking compensation for historic car finance.
The FCA are investigating whether companies like Lloyds and Close Brothers mis-sold products to customers by using hidden so-called discretionary commission arrangements.
This allowed brokers and car dealers to raise the interest on car finance agreements to increase the amount they get on commission, meaning customers overpay without knowing.
This practice was banned in 2021, after regulators found it was costing drivers far more than the flat fees used in car finance today.
Banks have already set aside hundreds of millions of pounds, including an expected wave of compensation payouts.
Lloyds said on Monday its understanding of ‘compliant disclosure’ of commissions was built on regulators’ advice at the time.
It added that this new Court of Appeal rulings ‘go beyond the scope of the current FCA motor commissions review’.
