The UK car finance sector is experiencing unrest following a court ruling on commission disclosure.
- Major finance companies have paused credit services, impacting car sales across the UK.
- The judgment requires brokers to disclose commissions, causing significant operational changes.
- Industry leaders express concern over the ruling’s timing, coinciding with government budget plans.
- Potential financial liabilities for banks could mirror the costly PPI scandal.
The UK car finance industry is currently navigating a period of significant disruption due to a court ruling mandating the explicit disclosure of commission payments by brokers. This decision has placed considerable pressure on lenders, leading to urgent consultations with regulatory bodies to address the immediate challenges posed. At least three major finance providers, including Close Brothers and Honda Finance Europe, have already halted new credit approvals, with others like BMW and Zopa expected to follow suit.
Financial analyst Gary Greenwood has expressed concerns about the potential standstill in car sales, given the heavy reliance on credit for purchasing new and used vehicles in the UK. He warns of an industry-wide paralysis if lenders continue to remain cautious about extending credit to consumers.
Stephen Haddrill, Director-General of the Finance and Leasing Association, has voiced criticism regarding the timing of the ruling, which aligns with the introduction of a government budget aimed at fostering economic growth. Haddrill highlights the possibility of a deceleration in vehicle sales due to pending compliance requirements.
The Financial Conduct Authority (FCA) is actively monitoring the situation, acknowledging the need for clarity within the industry. FCA’s Chief Executive, Nikhil Rathi, has expressed optimism for a Supreme Court review to alleviate persistent uncertainties.
Beyond the automotive sector, the judgment’s implications extend to business equipment leasing, posing further complexities for credit-reliant transactions. Banks are bracing for potential financial repercussions, reminiscent of the payment protection insurance scandal, with significant liabilities forecasted for institutions such as Santander UK and Lloyds Banking Group.
The UK car finance industry urgently requires a resolution to this regulatory challenge to prevent long-term economic detriment.
