I appreciate that I am biased, because I work in banking but for heaven sake - if you can't compare the prices on a loan then you deserve what you get - it's not up to sellers in any other industry except for finance to have to list out what competitors are charging and what commission they make - Tesco doesn't have to list their margin on each product - and they do receive the equivalent of commission - by way of rebates which means that they will push some products more than others.
As an unexpected consequence, I have been told that Honda UK are not writing new loans for vehicles until this is resolved and have actually prevented some cars being handed over.
I suspect other manufacturers will follow until they are sure that their paperwork covers all eventualities.
Close Bros have stopped writing car loans for the time being which must be impacting some small dealers until they find alternative finance providers.
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Saw this mentioned in the Graun today but not had time to get my head around what the case means.
The judgment is here:
assets.caselaw.nationalarchives.gov.uk/ewca/civ/2024/1282/ewca_civ_2024_1282.pdf
Not read it in full but the issue seems to be that the mechanism by which the commission payments were calculated created an incentive for the interest rate to be set higher than would otherwise be the case.
The consumer, unless he was very smart and or well informed, would have no sight on that issue. It was wrapped up in a load of sums over cars price, any discount offered and the trade in on an old vehicle.
I guess the financially sophisticated may have thought 8% (to pluck a figure from the air) was too high and tried to negotiate it down. Not sure I would have had the courage to do that though.
Effectively the customer was being disadvantaged; ripped off if you want to use emotive words.
The FCA forbade the practice after c2021.
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Just seen a FB clip from a local Indy saying that with effect from mid day today, no further car loans can be issued until this issue is resolved.
Doesn’t affect bank loans of course.
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>> Just seen a FB clip from a local Indy saying that with effect from mid
>> day today, no further car loans can be issued until this issue is resolved.
>> Doesn’t affect bank loans of course.
>>
I think car loans are easier to qualify for.
I suspect some small dealers will really suffer because of this, with a lot of trade lost.
The cynic in me thinks it might be a deliberate ploy to force people out of cars - if they can't afford one then they can't get a loan and they then have to take public transport.
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>> I suspect some small dealers will really suffer because of this, with a lot of
>> trade lost.
According to the Appeal Court judgement the practice was banned in 2021 so it's not clear how stopping loans now is a rational response unless the dealers and lenders have found a workaround.
I know you've had your own run ins with the law but you do yourself no credit by posting conspiracy stuff.
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>>The consumer, unless he was very smart and or well informed, would have no sight on that
>>issue. It was wrapped up in a load of sums over cars price, any discount offered and the trade
>>in on an old vehicle.
How difficult is it to look at an APR and see that it's say 18% and then look at Barclays and see that it's 9% and say "oh - look, the loan is cheaper at Barclays, I'll go there"!
I'm fine with compensation where it's due, but this is rewarding the stupid / careless for being stupid / careless.
(We have a department that is dedicated to going through documents and identifying historic errors and repaying customers before they complain. They get their money back, plus 8% interest. It happens - the banks are out to make a profit - not to rip people off.)
Last edited by: zippy on Mon 28 Oct 24 at 15:38
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>> How difficult is it to look at an APR and see that it's say 18%
>> and then look at Barclays and see that it's 9% and say "oh - look,
>> the loan is cheaper at Barclays, I'll go there"!
I think part of the issue here is that the claimants were probably not the sort of customers who could access cheap loans from high street banks.
If these were instances of stupid/careless the court cases would not have go past first base.
I wonder if the lenders have the c****** to go the Supreme Court with it?
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The danger is that any high street loan will be subject to the potentially the same issues - furniture loans, loans for TVs etc.
Even interest free - I can just see the claim "I brought my TV interest free, but if I paid cash it would have been cheaper - give me compensation"!
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>>How difficult is it to look at an APR and see that it's say 18% and then look at Barclays and see that it's 9% and say "oh - look, the loan is cheaper at Barclays, I'll go there"!
I get the impression the majority of the public are too lazy/stupid/indifferent to bother.
1. couple bought a brand new car after sitting in one. Drove it home and decided it was uncomfortable. Want some sort of redress.
2. Same couple paid dealer £400 for gap insurance!
3. SIL had car stolen. Accepted first offer from insurance company and complained after she was way out of pocket.
4. Brother walked into phone shop and bought £30/m deal for text/calls and data (of which he only uses a fraction). I pay £5/m for more.
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Having got a few pages into the judgement I don't think the facts support it being as simple as zippy asserts.
I think the purchasers were not financially sophisticated and that they were in that part of the market that majors on weekly or monthly cost and not, as most of us here would do, cost to change with other things being extras.
If the cost of the actual loan, including the 'hidden' commission were wrapped in further numeric double dutch around discounts and trade in value then it's not surprising purchasers eyes were off the ball.
It will be interesting to see if it goes to the Supreme Court.
The nervous reaction of lenders and dealers in the aftermath of the judgment suggests to me that the FCA's outlawing of this practice has simply allowed other versions to appear and there are some very nervous people in both dealerships and lenders.
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I agree that when it comes to buying a new car on finance, any consumer should be able to compare the different offers from dealers and make a decision, because you are getting an identical new car.
The difficulty is in the used market, where every used car is different from the next one. That is when it is much harder to compare the offers and what is 'bundled into' the headline rate/monthly cost.
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>> The difficulty is in the used market, where every used car is different from the
>> next one. That is when it is much harder to compare the offers and what
>> is 'bundled into' the headline rate/monthly cost.
That. Exactly.
The cases involved second hand cars in the mid/lower range of main/secondary dealer sales - around the £10,000 mark.
Very much more difficult to analyse than list less discount less trade in.
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Perhaps it's just me but every time I purchased a car I wanted the price with and without loans. Probably because I was always skint and would look around for the best overall deal including buying the car with a bank rather than dealer loan.
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>> Perhaps it's just me but every time I purchased a car I wanted the price
>> with and without loans.
I would do the same but like you I'm a professional person used to thinking in numbers. My Father was very clued up on this stuff; I follow his example and read the finance pages in the paper and listen to programmes like Money Box or You and Yours.
In the past I've certainly weighed up personal loans v dealer finance v PCP. I've also listened to a lot of bull shine from dealers, not back street folks but franchises for the big manufacturing combines, about how their PCP or HP is the doggy's danglies irrespective of what the actual numbers say.
A lot of people just don't get how money etc works. As a nation we're nearly as bad about public financial education as we are about public legal education. Folks living out there in number just don't think beyond the perhaps discounted screen price and even then their focus is wholly on cost per week or month.
If the system described to the Court of Appeal consciously took advantage of that cohort's lack of financial knowledge/sophistication so as to take them to the cleaners then I think that should be punished.
As you said earlier I doubt the motor industry's credit brokers were the only ones playing this sort of game. I'd not be surprised if a lot of lenders, including those who are well known names, are looking nervous and updating their risk registers...
Last edited by: Bromptonaut on Tue 29 Oct 24 at 16:43
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I had a lot of involvement with motor finance up to about 1986. Most big dealers were on a net rate scale whereby they could quote a higher APR and the commission paid would be such as to maintain the net yield to the lender so the NPV of all the extra payments went to the dealer. Some of the commissions were obscene.
The Tesco analogy is imperfect. Tesco don't add £10 to the price if they can catch a customer napping - the price is the price. Not that Tesco et al are above getting tricksy. Reward cards now operate such that you will pay a higher price if you don't use one. My regular Sainsbury shop now typically shows I would have paid at least £10 more had I not scanned my Nectar 'card'.
And car loan comparisons aren't easy to make for many 'normal' people. They see a lower monthly payment but maybe they overlook the difference in the number of payments or the size of the balloon. Even an APR doesn't tell the whole story; few realise that interest will be charged on the unreducing large final payment (LFP) throughout the term, so a lower LFP is better if you are planning to buy at the end of term. The opposite applies if you are simply going to take the sell option.
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like everything to do with the car trade, its all down to the dealers bottom line and profit margin.
As far as punters go, isnt it just a matter of what you can afford? regardless of how the price is made up?
Anyway, at the moment car credit deals are unobtainable. No-one wins in those circumstances
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There's a report in the Times about one of the cases that went to the Court of Appeal:
www.thetimes.com/business-money/money/article/how-a-16k-case-could-cost-car-finance-firms-13bn-2v92nl5hz
I can't find an alternative account outside the Times's paywall.
The subject was buying a first car was in his late twenties and does not appear remotely financially sophisticated. On a deal for a £6,500 car the dealer's commission was £1600!!
Taking people for mugs.
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And in his late 20's he never got any other loan and compared the rates?
Was the car well priced to attract him in - so comparing like with like at another dealer, the overall cost would have been similar?
Has he gone in to Currys and paid 29.9%APR for a loan on his flat screen TV or did he buy it out right and used a loan from Tesco at 9.9%?
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>> Has he gone in to Currys and paid 29.9%APR for a loan on his flat
>> screen TV or did he buy it out right and used a loan from Tesco
>> at 9.9%?
Would he have passed Tesco's vetting for credit at 9.9%
There's a reason Currys APR is 29.9% and it's not just to keep the company's shareholders in the style they'd like to be accustomed to.
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Using 12ft.io/ gets round (or over) the paywall.
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Motorpoint have always been expensive for high APR Loans - say 10-12+% minimum
In the past 2? weeks this has fallen to 7.9%
Quite a drop !
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People on lower incomes cannot afford to worry about the outright cost of a loan. All that matters to them is whether they can afford the monthly premiums. It's no good telling someone on the margins that they can get a cheaper loan over a shorter period if their washing machine has packed up because they simply cannot afford the repayments every month.
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It’s ironiic that the poorer you are the more expensive everything is.
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“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”
― Terry Pratchett, Men at Arms: The Play
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>“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
>Take boots, for example...
Would that work with, say, apartments, suits, spectacles, concert tickets.., ?
BTW. I think we have a forum member familiar with boot economics.
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>> Would that work with, say, apartments, suits, spectacles, concert tickets.., ?
As this is a motoring forum it certainly can be true for cars.
Last edited by: zippy on Tue 5 Nov 24 at 16:20
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There has been a civil case going through the courts relating to hidden commission payments to a firm of patent attorneys for patent renewal fees. This was a rare class action and was settled today with a payment to the class action members. Although there was not a court decision on liability, it seems that hidden commissions may generally be a risky proposition.
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Car Loan Mis-selling - Bromptonaut
