Ritika Janiya
The car financing world in the UK has hit a rough patch, and it’s causing big problems for people buying cars, both new and used. Many car buyers and dealers are in a bind after a major Court of Appeal decision that’s left finance companies unsure of how to proceed. This recent decision has stopped finance payouts on car deals, and many dealers can’t finalize sales because financing has been paused.
What’s Going On?
On Friday, the Court of Appeal ruled in favor of three car finance customers, stating that a broker cannot accept a commission from a lender unless the customer is fully aware and has agreed to it. This ruling sent a shockwave through the car industry. Many car dealers are finding themselves unable to help customers buy vehicles because of the financing freeze. In simple terms, if a dealer or broker is getting paid a commission to help a customer get a car loan, the customer needs to be fully informed of this payment. If not, the dealer might be breaking the law.
The ruling has led to several finance companies halting their processes until they figure out how to follow the new rule correctly. This change has left dealers all over the country unable to offer financing to customers – a crucial part of the car-buying process for many people.
Which Companies Are Affected?
While some companies have continued as usual, others have made quick changes in response to the court decision. For instance, Volkswagen Group still pays out on finance deals, allowing customers to get their cars. However, other big brands like BMW, Honda, and Stellantis have changed their policies. BMW has stopped all payouts, Honda has altered its terms, and Stellantis has paused commission payments to stay on the safe side legally.
Car financing companies are scrambling to adjust to this ruling, trying to figure out how to keep business flowing without breaking the law. Many car dealers who depend on financing commission to make money now face a serious problem. For these dealers, a pause in car financing income could hurt their businesses significantly, and some fear this could create financial hardships if the issue isn’t resolved soon.
The Race to Fix Things
Finance companies are now working on new systems and procedures to follow the court’s guidance. They need to set up a way for car dealers to clearly disclose commission payments to customers and get their approval before completing a sale. This means a lot of paperwork changes, and the industry is feeling the pressure.
One car dealer executive mentioned that if these issues aren’t resolved soon, it could lead to what he called “financial armageddon” for many dealers. The delay could last up to 10 days, he added, while finance companies figure out a legal way to operate under the new rules. “It’s causing big problems in the industry, especially for dealer groups who rely on car finance commissions to make a profit,” he explained.
Similar to Mortgage Rules
Industry insiders predict that the changes will look somewhat like the system mortgage brokers use, where customers are told upfront how much the broker earns for arranging their mortgage. This way, customers know what they’re paying for and why. It’s likely that car finance deals will soon work in a similar way, with customers getting a clearer picture of any commission involved.
More Finance Companies Hit the Brakes
Since Friday’s ruling, more finance lenders have joined the pause, leaving customers and dealers in a difficult position. For instance, MotoNovo, Northridge Finance, and Blue Motor Finance have all stopped payouts, joining Close Brothers, another finance company that halted its deals.
It’s not only these companies taking a break; some well-known names in the car finance world, like BMW, Secure Trust Bank, Zopa, and Investec, have also paused their car finance deals to assess the impact of the court’s decision.
Meanwhile, big banks like Santander and Lloyds have delayed their quarterly results as they figure out how this ruling might affect their business. This pause indicates just how significant the ruling could be for the car finance market.
What’s Next for Car Finance?
At the moment, car finance companies are working hard to make their systems compliant with the Court of Appeal’s ruling. This will mean creating new processes that allow dealers to explain commission payments to customers, so buyers know the full cost and arrangement details before they finalize the car purchase. For many, this process of becoming compliant is taking time and involves quite a few changes.
