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    • Court of Appeal ruling on finance charges: What does it mean for car buyers?
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    Court of Appeal ruling on finance charges: What does it mean for car buyers?

    Online Niel Posted on

    A recent Court of Appeal decision has prompted several car finance companies, including Close Brothers and Honda Finance, to stop signing new finance deals.
    This means that while lenders review their practices, you may not be able to complete your funding application. It is not known how long these delays will last or how many lenders will have to break new agreements, but we will keep this page updated with the latest news as we receive it.

    Summary: Court of Appeal rules in favor of consumer complaints, meaning lenders must disclose any commissions made on a sale

    Earlier this year, the Financial Conduct Authority (FCA) began investigating whether some car finance customers were overcharged through a Discretionary Commission Agreement (DCA). The details of that ongoing investigation are available here.
    In that investigation, three consumers alleged that car dealers, acting as brokers, failed to disclose commission payments and that this affected the impartiality of the financial advice they gave. The Court of Appeal reviewed three cases involving claims against Close Brothers, Firstrand Bank and Motonovo Finance and ruled in favor of consumers who claimed they were mis-sold auto finance, saying that “a broker cannot lawfully receive a commission from a credit. without obtaining the customer’s fully informed consent to payment”. The ruling emphasized that car dealers acting as credit brokers have a “fiduciary duty” – meaning they have a legal responsibility to act solely in the interest of another party – to disclose any commissions received to their customers. This is a big ruling, and the Court of Appeal’s decision could set a new legal standard for disclosure, with financial deals requiring more transparency about fees going forward. Following the ruling, Close Brothers has suspended all new auto financing to review and adjust its documentation and processes for compliance. Honda Finance and MotoNovo Finance have also notified their dealers that payments on existing finance agreements will be suspended until further notice.

    What does this mean for car buyers?

    While lenders establish new processes and adjust their documentation, you may experience delays:
    • If you expect to collect a financed vehicle, you may have to wait if your lender has cut off, as payments on existing finance arrangements have been suspended while new processes are put in place. • New car finance offers may be discontinued while the industry adapts to new legal requirements, meaning you will have more limited options for now. Further, you may be required to provide explicit informed consent for any payment of fees associated with financial arrangements. This means that any commission made on a sale will be discussed with you and you will have the option to agree to it. Some providers have already introduced commission disclosure features, which we will cover in due course.

    I am in the process of buying a car, what can I do?

    Not all lenders take a break, so check first if you’ll be affected.
    For those who are, it’s still unclear how long the break will last, so you should stay in touch with your retailer or lender for updates as they update their systems and processes. If you can wait until lenders have fully implemented the necessary changes, this could help avoid delays or complications. You can also explore alternative funding options such as personal finance or another lender, but make sure you take the time to research this properly. Read the terms and conditions and make sure you can afford the full payments – don’t rush into a decision while things are uncertain. You can get free and unbiased advice from MoneyHelper and Citizen’s advice.

    How do creditors respond?

    Lenders including Close Brothers, Motonovo and Honda Finance are reassessing their financial processes and checking compliance to ensure they meet the new legal requirements.
    Also, Close Brothers intends to appeal the decision of the Court of Appeal to the Supreme Court in Great Britain. Other lenders will update their systems and processes to ensure they are compliant. Things might take a little longer over the next few days, but if you can afford to stick with it, things should be sorted out over the next few days and weeks.

    Despite any delays this decision may cause in the short term, the upside is that it will bring more transparency to the car financing process going forward; something we strongly support here at Auto Trader and know many lenders and finance providers have been doing for a long time.

    Online Niel
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