In my previous piece, I explored the uncertainty facing the motor finance industry, particularly the impact on regulated firms – lenders, credit brokers, car dealerships, and anyone else in the motor vehicle distribution chain. Unfortunately, there is no doubting that there will be redress or remediation or compensation to pay to customers (together with associated costs).  The extent of potential redress etc will remain uncertain until the lawmakers and regulators further opine in due course.

But what about the consumer? Will they be in a better position in the future by virtue of the current Court of Appeal decision in the conjoined cases of Johnson v FirstRand Bank Limited (London Branch) T/A Motonovo Finance, Wrench v FirstRand Bank Limited, and Hopcraft v Close Brothers Ltd?

A personal perspective

While I do not claim to be the average consumer, if such a person exists, I have recently bought a new car.  I went to a car dealership, predominantly for a test drive, but spent most of the time with a very enthusiastic salesperson who shared various finance options with me. Each time he printed off a summary of the finance deal, which included commissions adequately disclosed (as far as I’m concerned), and I attempted to compare one deal against the other.  My real focus, however, was simple: how much was I required to pay upfront and what would my monthly payments be?

Comparing one finance option against another is not straightforward – the terms were not like-for-like – so I was comparing apples and pears.  In all honesty I had no care for commissions, whether secret, disclosed or otherwise.  During the discussion the salesperson also looked to promote/sell a maintenance package. Suddenly, I was comparing apples and pears and oranges.  If free car mats had been thrown in, I would have been completely lost!

I left the car dealership and subsequently went online and sought out a finance option through a car leasing comparison website. I have entered into a finance lease and a separate maintenance agreement, both which rewarded the providers with a commission.  Did I secure the best deal?  Probably not, but we live in a world of imperfect information, where it must be accepted that parties involved in the motor finance distribution chain need to earn a living.

The reality for consumers

Most consumers are time poor.  They don’t have the financial knowledge, negotiating power or the inclination to investigate whether they can get the same finance option but for the commissions being charged.  They struggle to compare the proverbial fruit, however much information that they are inundated with.  They just want their chosen vehicle at a fair and reasonable price to what their budget affords.

It’s great to see that some lenders who took a short pause in lending are back to BAU having updated their documentation and processes to address the practical implications for offering lending to consumers following the Court of Appeal’s decision.  Without downplaying the operational impact on firms, this is largely a re-papering exercise, ensuring customers get greater disclosure and provide necessary consents.

In the short term, for the consumer it just adds an extra stage to the process.  For most, the same approach will be taken with how the majority of consumers deal with online terms and conditions that won’t allow you to pass ‘go’ until the box is ticked, consent will be given without a further thought. 

Longer-term implications

The longer-term impacts though could be much greater.  Depending on whether the Court of Appeal’s decision is upheld in whole or in part will have a large bearing on the extent of potential redress and associated costs.  As mentioned in my previous article, it’s the small and medium sized firms in the distribution chain that could have their solvency at risk, and inevitably some will fail, entering into an appropriate insolvency process. Seeking appropriate professional advice on impacts and options at an early stage would be a wise action for regulated firms. 

A plethora of insolvencies would lead to less choice in the market for consumers, particularly for the most vulnerable or those already who find it hard to obtain affordable finance. Redress costs will, over time, be pushed on to new customers and financing arrangements may become more expensive. 

On the positive side of things, historic motor finance ‘victims’ will receive redress or compensation for a product that, arguably in a large majority of cases, they would have still taken out even if fully aware of all commissions.