Jack Cameron
01 November 2024
The UK Budget wasn’t the only recent piece of seismic news within the UK automotive finance world. A surprising Court of Appeal judgement ruled that that it was unlawful for two lenders to have paid a “secret” commission to car dealers without the borrowers’ knowledge.
The new ruling is likely to force the entire industry to transparently disclose commissions to customers and obtain their explicit consent before arranging financing—a shift that resembles mortgage brokers’ current practices.
Pike+Bambridge welcome this change, as we have always been open and up front about our commission rates. We believe this is a step in the right direction in cleaning up the car industry and the negative reputation it has held for too long.
What has the response been from lenders?
This ruling has undeniably shaken the industry, with many of the big car finance providers scrambling to adjust their operations. While some companies like Volkswagen Group have continued processing deals, others have paused payments or modified terms to remain compliant.
Dealerships reliant on finance commission as a critical part of their revenue stream face potentially severe financial strain. Although this is seen as a temporary challenge, with expectations that procedures could take up to 10 days to be realigned, the impact on current operations is substantial.
The Times reported that major lenders like MotoNovo, Secure Trust Bank, Zopa and Investec have temporarily paused financing altogether, further amplifying concerns within the industry.
The ruling has certainly split opinions amongst those in the industry. Malcolm Heggie, Director of Commercial Finance Consultancy Limited, described the ruling as ‘a left of field judgment’ and stated that ‘Disclosure and transparency are essential in business, and if this results in better protection/information to the consumer, so much the better’.
Finance & Leasing director general Stephen Haddrill described the decision as ‘making nonsense of the claim that Britain is becoming a more investible place to do business,’ when speaking to the Times.
What does this mean for car buyers?
While lenders set up new processes and adjust their documentation, you may face slightly longer processes or extra documentation when acquiring your vehicle. Not all lenders are impacted, however, so first check whether you’ll be personally affected.
If you were expecting to collect a financed vehicle, you may have to wait if your lender has paused, as pay-outs on existing finance agreements have been suspended while new processes are put in place. You may also have more limited options for the time being as the industry adjusts.
Going forward, you may be asked to provide explicit informed consent for any commission payments associated with finance agreements. This means that you will be talked through any commission made on a sale, and be given the option to agree to it.
If you have bought a car or are in the process of buying from Pike+Bambridge, don’t worry. We have always been comfortable with our commissions being disclosed to our customers and the value of them, so we are fully prepared for these changes.
Our CEO, Piers Bambridge, had this to say:
“Whilst there will undoubtedly be some disruption as lenders and brokers alike adjust to the new market reality, we have always supported the idea of changing the way people buy cars since we were founded, and we have often felt that we lag behind our FCA-regulated equivalents within the likes of the mortgage and IFA sectors, where many of our clients have far more stringent qualifications and disclosures.”
It remains to be seen the exact implementation of this process, but do get in touch with our team if you have any queries.
