Some car makers have paused sales in the wake of a UK court judgement that taking commissions on car financing is unlawful.
The landmark ruling by the Court of Appeal has thrown banks, dealers and car makers into a state of disarray, given that it effectively bans dealers from profiting on finance deals unless the buyer gives their consent.
Such was the worry from car markers in the aftermath of last Friday’s ruling that BMW and Honda dealers were told to hold back vehicles already sold through financing deals while the situation was assessed, The Telegraph reports.
Honda Finance Europe operations director Richard Winter told dealers the firm wouldn't be paying out on already agreed finance contracts “until further notice”, adding that it was a “difficult decision”, Car Dealer reports.
A spokesperson for Honda Finance Europe has since confirmed that deliveries have resumed through interim provisions, adding: “We have now had time to review the situation and have been able to put in place interim measures to allow us to resume the funding of all finance business.”
The ruling by the Court of Appeal – one of the highest courts in the country – was announced as part of a case brought against Close Brothers and Firstrand Bank by three customers who claimed they were mis-sold finance deals. The trio had previously had their cases thrown out by lower courts.
Judges unanimously ruled to uphold their appeals, stating that “a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment”.
Moreover, the ruling effectively threatens the long-established agreement that dealers receive commissions from banks or lenders for acting as a middle man in selling finance agreements on vehicles.
Since the ruling, many car makers have already begun to disclose commission rates to customers in order to continue business as normal.
This has sent shockwaves through the industry as it braces for a barrage of incoming lawsuits, likened to how the payment protection insurance (PPI) scandal exploded at the turn of the 2010s.
Among those gearing up for the worst is Lloyds Bank, as the owner of Black Horse, a leading lender of car finance. In February, it revealed it had set aside £450 million to cover legal expenses and compensation payouts.
It follows an investigation earlier this year by the Financial Conduct Authority (FCA) concerning discretionary commission arrangements (DCAs) sold between 2007 and 2020, after more than 10,000 complaints were made.
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Isn't Gap Insurance a con too? The likelihood of anyone actually claiming on it is miniscule, yet dealers push it as if it's a dead certainty that someone is going to write off your new car as soon as you drive off the forecourt. An investigation into Gap Insurance could be the next thing on the list.
This article is seriously
misleading.
It is not the receipt of commission that has been ruled unlawful - It isn't.
What the court ruled was that the value / nature of the commission, how it was calculated and so on should have been disclosed. This directly contradicts the FCA guidelines of the time which merely require that a dealer disclose whether they may or may not receive a commission from the finance house.
so all these dealers have been acting entirely within the rules and may now be punished for doing exactly what they were told to do.
The transparency concerning who gets what commission is welcome, but I don't see any case for past customers being able to claim compensation. Nobody is forced to go and buy a new car, you're free to accept or refuse the terms being offered, and compare it to alternatives if you're not happy with the final amount. The Court of Appeal (and the likes of Martin Lewis) have gotthis very wrong, it will be the general consumer who pays for this compensation, certainly not the financial institutions or their shareholders.