RE: Finance payout worth less than £950 per deal
Yesterday
Finance payout worth less than £950 per deal
The FCA's proposed compensation scheme may end up costing lenders £18bn - but it will be limited in scope
On Friday, when we reported on the Supreme Court’s ruling that hidden commissions on car finance were not intrinsically unlawful - except in certain circumstances, such as when said commission was deemed high enough to make the arrangement unfair - we suggested that the Financial Conduct Authority’s response would be worth keeping an eye out for. Well, it has wasted precious time in putting pen to paper: in a statement released on Sunday, it confirmed that it will consult on running a payout scheme that might end up costing the industry as much as £18 billion.
If that sounds like a tremendous amount of money, it is - but it falls far short of the sums that might have been paid out had the Supreme Court decided that all undeclared commissions between lender and dealer were, by their nature, breaking the law. Because it did not, the FCA reckons that most of the individuals who will ultimately be covered by the new scheme will probably receive less than £950 in compensation per agreement.
That’s based on its current estimate anyway; the FCA concedes that it cannot know for sure until the compensation plan is fully drafted, which is what the consultation - launching by ‘early October’ - is all about. Assuming it goes ahead, first payments should begin next year. To give you an idea of the leeway we’re talking about, the scheme might end up only costing £9 billion. Or more likely, someone in the middle.
This is because it will need to balance principles ‘including fairness, timeliness and certainty’, although the FCA reiterates that providing prompt clarity to consumers, firms and investors is a priority. “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated,” said Chief Executive, Nikhil Rathi. “We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”
Crucially, the FCA will propose the rules on how lenders ‘consistently, efficiently and fairly’ decide whether or not someone is owed compensation and how much. If that sounds a bit like putting the fox in charge of chicken coop security, it will also be the regulator’s job to monitor if firms are obeying the rules. At any rate, the idea is that the scheme will be straightforward and painless for the people it is supposed to be compensating, without a requirement for third-party legal assistance.
“Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get,” suggested Rathi. “It will take time to establish a scheme but we hope to start getting people any money they are owed next year.” If you’ve already complained, you apparently don’t need to do anything. On the other hand, if you haven’t done so previously and you believe you were overcharged, you can click here to see about raising your hand.
Discussion
I'm not a legal expert, but I think the answer is "no" as the finding was only that DCA schemes were illeagal and I don't think they were used widely outside the car industry. It is the linking of the interest rate set to the commision earnt that the Supreme Court found against the Finance Industry. That normal commissions were "hidden" was not found to be illegal
TBH I am not convinced about compensation is appropriate as car sales are complicated with negotiation on the car price, discount, trade in value, interest rate and term and commission charged. Ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers
That said, no doubt, there were some taken advantage of, but that's been happening for time immemorial where dealers sell the car for the best profit for them possible
That was a key finding of the case - it is not reasonable to for customers to consider that dealers will act in the customers best interests and customers should not expect it
I will be interested if others with better knowledge than me can either confirm or correct my understanding
TBH I am not convinced about compensation is appropriate as car sales are complicated with negotiation on the car price, discount, trade in value, interest rate and term and commission charged. Ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers
That said, no doubt, there were some taken advantage of, but that's been happening for time immemorial where dealers sell the car for the best profit for them possible
That was a key finding of the case - it is not reasonable to for customers to consider that dealers will act in the customers best interests and customers should not expect it
I will be interested if others with better knowledge than me can either confirm or correct my understanding
martin12345 said:
I'm not a legal expert, but I think the answer is "no" as the finding was only that DCA schemes were illeagal and I don't think they were used widely outside the car industry. It is the linking of the interest rate set to the commision earnt that the Supreme Court found against the Finance Industry. That normal commissions were "hidden" was not found to be illegal
TBH I am not convinced about compensation is appropriate as car sales are complicated with negotiation on the car price, discount, trade in value, interest rate and term and commission charged. Ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers
That said, no doubt, there were some taken advantage of, but that's been happening for time immemorial where dealers sell the car for the best profit for them possible
That was a key finding of the case - it is not reasonable to for customers to consider that dealers will act in the customers best interests and customers should not expect it
I will be interested if others with better knowledge than me can either confirm or correct my understanding
I’m no legal expert either, but I’m inclined to agree.TBH I am not convinced about compensation is appropriate as car sales are complicated with negotiation on the car price, discount, trade in value, interest rate and term and commission charged. Ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers
That said, no doubt, there were some taken advantage of, but that's been happening for time immemorial where dealers sell the car for the best profit for them possible
That was a key finding of the case - it is not reasonable to for customers to consider that dealers will act in the customers best interests and customers should not expect it
I will be interested if others with better knowledge than me can either confirm or correct my understanding
You’ve hit the nail on the head though when you say …. “ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers”. That’s exactly how I see it, albeit, excessive commissions should be tackled.
In terms of a resolution, I don’t envy the FCA!
If the actual deposit, monthlies and APR were all quoted accurately quoted I’d not have a lot of sympathy for a customer, even if the commission was 55%. Nor would I.see it as wrong to tie commission to % - I thought most sales people were incentivised to max revenue?
However, what was explained on a BBC article this morning, was that in the case of the 55% deal, the sales person said they’d gone to lots of lenders and this was the best deal, whilst not disclosing that this was the one that got them a commission. That’s the bit that makes the claim reasonable in my mind.
However, what was explained on a BBC article this morning, was that in the case of the 55% deal, the sales person said they’d gone to lots of lenders and this was the best deal, whilst not disclosing that this was the one that got them a commission. That’s the bit that makes the claim reasonable in my mind.
gl20 said:
If the actual deposit, monthlies and APR were all quoted accurately quoted I d not have a lot of sympathy for a customer, even if the commission was 55%. Nor would I.see it as wrong to tie commission to % - I thought most sales people were incentivised to max revenue?
However, what was explained on a BBC article this morning, was that in the case of the 55% deal, the sales person said they d gone to lots of lenders and this was the best deal, whilst not disclosing that this was the one that got them a commission. That s the bit that makes the claim reasonable in my mind.
I do not see there is any issue here. Surely if one walks into a dealership to buy a car, you know that the salesperson earns a commission on each sale? and that for the last few years, they earn a commission on the finance? And surely you must know that they are tied into whichever finance company is used by the Franchise? Otherwise it is like using a financial advisor who is tied to a product line and then complaining that they hid the fact that they earn a commission. And that as far as they were concerned the product they were selling was the best deal?However, what was explained on a BBC article this morning, was that in the case of the 55% deal, the sales person said they d gone to lots of lenders and this was the best deal, whilst not disclosing that this was the one that got them a commission. That s the bit that makes the claim reasonable in my mind.
I think the court ruling was sensible and indeed this approach by the FCA is too.
My biggest issue with this whole thing is that dealers were offering different interest rates to customers depending on how much commission they wanted to take and the customers didn t know and weren t told about the commission.
I experienced this first hand several times as was a serial user of PCP for lightly used BMW cars (shame on me I know).
As someone who works in financial services albeit on the banking side I knew the game that was there to be played, which was negotiate hard on the interest rate to drive down the monthly payment knowing the dealers had flexibility depending on how much commission they wanted.
I often got them to move from quoted rates of 10.9% to nearer 5% as I d just say I d get the finance from a broker and some commission was better to them than none.
The only franchise I could never get to budge were Sytner and so I never bought a car from them using their finance.
So I guess was one of the more informed consumers who used their shadiness to my advantage.
A lot didn t though and these are the ones who deserve compensation.
My biggest issue with this whole thing is that dealers were offering different interest rates to customers depending on how much commission they wanted to take and the customers didn t know and weren t told about the commission.
I experienced this first hand several times as was a serial user of PCP for lightly used BMW cars (shame on me I know).
As someone who works in financial services albeit on the banking side I knew the game that was there to be played, which was negotiate hard on the interest rate to drive down the monthly payment knowing the dealers had flexibility depending on how much commission they wanted.
I often got them to move from quoted rates of 10.9% to nearer 5% as I d just say I d get the finance from a broker and some commission was better to them than none.
The only franchise I could never get to budge were Sytner and so I never bought a car from them using their finance.
So I guess was one of the more informed consumers who used their shadiness to my advantage.
A lot didn t though and these are the ones who deserve compensation.
martin12345 said:
I'm not a legal expert, but I think the answer is "no" as the finding was only that DCA schemes were illeagal and I don't think they were used widely outside the car industry. It is the linking of the interest rate set to the commision earnt that the Supreme Court found against the Finance Industry. That normal commissions were "hidden" was not found to be illegal
TBH I am not convinced about compensation is appropriate as car sales are complicated with negotiation on the car price, discount, trade in value, interest rate and term and commission charged. Ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers
That said, no doubt, there were some taken advantage of, but that's been happening for time immemorial where dealers sell the car for the best profit for them possible
That was a key finding of the case - it is not reasonable to for customers to consider that dealers will act in the customers best interests and customers should not expect it
I will be interested if others with better knowledge than me can either confirm or correct my understanding
Thanks for a comprehensive reply, Martin.TBH I am not convinced about compensation is appropriate as car sales are complicated with negotiation on the car price, discount, trade in value, interest rate and term and commission charged. Ultimately most people were concerned about the monthly payment and the lump sum down and whether those were competitive and how the dealer judged the variable to win the sale didn't matter to the customers
That said, no doubt, there were some taken advantage of, but that's been happening for time immemorial where dealers sell the car for the best profit for them possible
That was a key finding of the case - it is not reasonable to for customers to consider that dealers will act in the customers best interests and customers should not expect it
I will be interested if others with better knowledge than me can either confirm or correct my understanding
I asked because I spent nearly 20 years of my life selling cars, many of which were, inevitably, on finance. I left in 2010, so I missed the boom in leasing.
Because of the end of the market I was dealing with (cheap, "common car for the common man" kind of product), finance deals were often the only way a car could be bought. The sales process always contained a step where we established what monthly budget the customer was comfortable with: not their absolute maximum possible, but what they could sustain. We then had to balance the sale price of the car (new or used) and the interest rate of the finance to create a number that worked for them on a monthly basis. In some cases, yes - commission was earned. But often it was not, since we had to squeeze rates to the minimum to offer something the customer could afford.
If the lender's credit check established that they didn't feel the customer could afford the payment long-term, they were declined and we had to look at sub-prime finance lenders, over which we had far less control of the rates available. That, for me, is where the court ruling might carry some weight.
My personal experience is that once a customer was declined by a prime / in-house lender, you'd probably lose the sale.
Legislative requirements about what information is on the finance agreement (total cost of loan, interest due etc) was deemed sufficient to leave anyone about to sign it in no doubt that they'd be paying a premium over the car's value during the period of the loan (0% deals excepted). It shouldn't matter whether that premium was kept by the lender or shared with the dealer.
What sort of clown goes into a car dealership without a basic grasp of the costs involved?
It just seems insane that anyone would not have a vague idea of what they can borrow and at what cost, especially in this day and age where money supermarket (I think, its certainly one of those websites) will tell you roughly what you can borrow and the APR.
Its as important as looking on autotrader at the cars you might be interested in, if there are 2 similar cars 99% of the time you go to look at the cheapest one first.
Same with finance, if I can borrow from my bank at 5%, Zopa at 4.8% or BMW at 13.9% its the fault of no one but me if I choose to borrow from BMW.
How those rates are arrived at is frankly of no concern whatever, commission or not.
It just seems insane that anyone would not have a vague idea of what they can borrow and at what cost, especially in this day and age where money supermarket (I think, its certainly one of those websites) will tell you roughly what you can borrow and the APR.
Its as important as looking on autotrader at the cars you might be interested in, if there are 2 similar cars 99% of the time you go to look at the cheapest one first.
Same with finance, if I can borrow from my bank at 5%, Zopa at 4.8% or BMW at 13.9% its the fault of no one but me if I choose to borrow from BMW.
How those rates are arrived at is frankly of no concern whatever, commission or not.
Turbobanana said:
Are we right to assume that the floodgates will now open for anyone who's ever had a mortgage? Or bought furniture on dealer-brokered finance? Or a kitchen?
No, that’s exactly what the Supreme Court ruled on Friday - it overturned a Court of Appeal ruling that could have bought all finance commission agreements in scope.So the FCAs scheme seems to stick to discretionary commission agreements and also unfair fixed non discretionary ones - but for motor finance only.
nikaiyo2 said:
Same with finance, if I can borrow from my bank at 5%, Zopa at 4.8% or BMW at 13.9% its the fault of no one but me if I choose to borrow from BMW.
How those rates are arrived at is frankly of no concern whatever, commission or not.
Because at a typical used car dealership you have no idea of knowing what % you will get, the price advertised is just the price of the car with a window sticker or on a Autotrader advert etc.How those rates are arrived at is frankly of no concern whatever, commission or not.
You then give your details, get told "you've been accepted for finance your % is X and your monthlies are Y" and that's it. You wouldn't know you got accepted for 5, or 6 lenders and the figures being chosen now are because thats the one earning the salesman the juicy kickback on top.
I caught Martin Lewis (a.k.a money saving expert) talking about this on Radio 4 and he seemed to think that the Supreme Court ruling was 'within 20% of the right result'. A valid point he made was that if the Court of Appeal ruling had been upheld in its entirety, a number of the finance companies involved would have declared bankruptcy and no compensation would have been paid.
Turbobanana said:
Are we right to assume that the floodgates will now open for anyone who's ever had a mortgage? Or bought furniture on dealer-brokered finance? Or a kitchen?
No as the potential redress scheme is supposedly only going to be for those customers whose Lenders were "guilty " of transgressing the rules on DCA agreements which had been declared "illegal " as far back as 2021.My guess is they will need to keep it pretty simply and either everyone gets a flat rate or potentially their original loan size is banded and a redress amount also banded accordingly - hence the "average " £950 quantum.
Usually compensation payments also attract a compounded 8% interest from the date of transgression but I doubt this will be the case here.
otolith said:
Recently bought a used car, an 11.5k ID.3 from a car supermarket. Told them it would be a cash purchase. They still tried hard to sell me a PCP at 12.5% APR, on the grounds that I could avoid taking a risk on the car s residual value. That seems a bit naughty to me.
Insist on paying by credit card, then settle that with your cash. That will cost them a few %Frimley111R said:
nikaiyo2 said:
What sort of clown goes into a car dealership without a basic grasp of the costs involved?
A shockingly high number I suspect and thanks to legal loopholes and 'ambulance chaser' type legal companies, some think it is somehow not their fault they made poor decisions.The Pistonsdead said:
They do seem to have quietened
The FCA has suggested not contacting them as has Martin Lewis's MSE.Not sure what happens to those that previously signed up to the Ambulance chasers who if redress happens will now presumably contractually be forced to pay away perhaps 30% of their much reduced payment.
Perhaps they will then contact another Ambulance chaser ?!
Forums | General Gassing | Top of Page | What's New | My Stuff