Chaos descends on the UK car finance industry following the Court of Appeal ruling, with customers…
Chaos has descended on Britain's car finance industry following the Court of Appeal's ruling, with customers unable to collect their cars and loan companies suspending finance deals.
The UK car finance industry has been thrown into turmoil following a pivotal ruling by the Court of Appeal, which will affect thousands of customers waiting to take delivery of their cars and disrupt the operations of dealers and finance companies across the board. Ta. The ruling, handed down in London last Friday (October 25), caused several lenders to suspend financing agreements on already-concluded transactions, and in many cases also halted new agreements.
Showrooms across the country are struggling to get cars to customers as finance companies reassess their practices, according to extensive reporting in the British motoring press. While some manufacturers, including the Volkswagen Group, are continuing to honor their loan agreements, other major companies, including BMW, have suspended loan payments, and Honda has already amended its terms, In a letter to dealers, European finance director Richard Winter said: In response to this ruling, Honda Finance will suspend payment operations until further notice as we continue to evaluate the ruling and its impact. There are no exceptions to this. ”
Stellantis, which owns Fiat, Jeep and Vauxhall, has stopped paying commissions to dealers. Meanwhile, Close Brothers, one of the industry's biggest players, has confirmed it is prepared to suspend new car finance deals across the UK, with a spokesperson commenting: , in support of the plaintiff's appeal against Close Brothers Limited. ” A spokesperson confirmed the company's intention to escalate the matter to the Supreme Court.
judgment
The Court of Appeal's decision addressed the obligations of dealers and financiers involved in auto financing transactions. The case centered on the issue of obtaining customers' explicit consent to pay commissions to brokers, raising complex questions about the roles and responsibilities of credit brokers and the lenders they represent. The court found that brokers acting as intermediaries between lenders and customers owe a “disinterested duty” to consumers unless they clearly communicate financial incentives from a particular lender. .
The ruling criticized cases in which dealers acting as both sales agents and credit intermediaries accepted commissions without informed consent from consumers. “All of the dealers in these cases were undoubtedly acting as credit brokers and were responsible for making introductions to lenders on behalf of creditors,” the judgment said. The court also noted the lack of transparency in fee disclosure and affirmed that brokers, who are in a position of trust with their customers, have a fiduciary duty to protect their customers' interests.
Impact on the industry
The judgment called into question existing Financial Conduct Authority (FCA) rules that require only brokers, not financiers, to disclose fees in certain circumstances. Current FCA regulations do not require brokers to obtain “informed consent” from borrowers, an anomaly highlighted by the Court of Appeal's decision.
Meanwhile, speaking at the Investment Association Annual Dinner at Mansion House in London on Tuesday night, FCA chief executive Nikhil Rati said: Analyze the impact on industry and consumers and identify what actions are needed. First and foremost, it is necessary to clarify whether this is the court's final decision on this issue. ”
Rati continued: “The two lenders in this case intend to appeal, and the Supreme Court will promptly decide whether to accept the appeal and, if so, whether to concur with the Court of Appeal.'' In the meantime, we want to ensure that our customers receive fair treatment under the law, and that more than 2 million people rely on auto finance to buy a car each year. “We are focused on ensuring that the auto finance market continues to function well.”
Also on Tuesday, in a webinar hosted by British car magazine Autotrader, Adrian Daly, director of vehicle finance and strategy at the Finance and Leasing Association (FLA), said lenders had previously used FCA regulations as a “safety policy” for compliance purposes. However, the judgment showed that this was not the case. In the same webinar, FLA Director-General Stephen Hadrill called for urgent guidance from the FCA to help the industry overcome the challenges posed by the judgment.
The potential impact on the auto finance industry is significant. The ruling opens the door to a flood of insurance claims and potential damages, with lenders and brokers likely to be required to repay undisclosed fees and step up cold calling and online marketing efforts. The number of insurance companies that do this is rapidly increasing. The stakes are so high that all eyes are on the Supreme Court.
party
In Johnson v. First Rand Bank, Wrench v. First Rand Bank, and Hopcraft v. Close Brothers, all three plaintiffs/appellants, instructed by HD Law (Johnson) and Consumer Rights Solicitors, Robert Weir KC, represented by Jonathan Butters and Thomas Westwell of Devereux Chambers (Wrench and Hopcraft).
FirstRand was represented by Matthew Hardwick KC of 3VB and Simon Popplewell of Gough Square Chambers, instructed by Eversheds Sutherland.
The Crows Brothers were coached by Walker Morris and represented by 3VB's Ian Wilson KC and William Day.
