A landmark court ruling on commission disclosure has unsettled the UK car finance sector.
- Major financiers have paused credit services, raising fears of severe market disruption.
- At least three prominent lenders have halted new credit approvals to assess the implications.
- Industry leaders are scrambling to find solutions, with potential economic impacts looming large.
- The requirement for explicit commission disclosure could slow vehicle sales significantly.
A recent court decision has shaken the UK car finance industry by imposing a new obligation on brokers to explicitly disclose the commissions they receive from customers. This ruling has resulted in immediate market reactions, with several lenders pausing their credit services. Notably, Close Brothers, MotoNovo, and Honda Finance Europe have announced immediate halts to new credit approvals as they assess the implications of this legal change.
Finance analyst Gary Greenwood has highlighted the potential for a significant disruption in car sales, as financing plays a critical role in most new and used vehicle purchases in the UK. He stated, “There is a very real risk that the industry could grind to a halt,” given that lenders are currently hesitant to extend credit amid the new demands.
The timing of the ruling has received criticism due to its coincidence with a government budget designed to spur economic growth. Industry voices, such as Stephen Haddrill, the director-general of the Finance and Leasing Association, argue that the judgment undermines Britain’s attractiveness as a business-friendly environment. The ruling has indeed puzzled European counterparts, especially considering the UK’s already stringent credit regulations.
Under the new requirements, lenders must disclose the size of any commissions and obtain explicit consent from customers, complicating what was once a discretionary process. The Financial Conduct Authority is keeping a close watch on developments, with its chief executive, Nikhil Rathi, expressing a need for clarity and urging a swift resolution of the uncertainties.
The financial repercussions for the banking sector could be substantial. Analysts predict that banks may face liabilities akin to those in the payment protection insurance scandal. Institutions like Santander UK and Lloyds Banking Group are already bracing for potential repercussions, with estimated liabilities running into billions of pounds.
The UK car finance industry urgently needs a resolution to the commission disclosure ruling to prevent further economic fallout.
