Supreme Court decision re car sale commission

[JohnC6]

Today, at 4.35pm the Supreme Court will deliver its verdict on whether or not to uphold an earlier ruling which found that hidden commission payments to car dealers were unlawful. It's at 4.35pm because the stock market closes at 4.30pm. The decision will, of course, affect the share price of banks like Barclays and Lloyds, especially the latter which is more exposed than most. If it's a decision that's going to cost them millions ,obviously, the share price will drop on Monday opening. There's a chance that even if the court finds in favour of the plaintiffs but it wasn't as bad as envisaged that could deter the level of selling and the stock prices will not be hit as hard and might even appreciate ...a sigh of relief. They say the cost to the loans industry could be higher than the PPI scandal. Payment Protection Insurance. Over the last year or so there have been companies advertising on the radio (LBC for one) and TV to represent claimants..ie claims companies. I even heard one this morning on LBC. The likes of Barclays and Lloyds have already set aside millions. Lloyds £1.2billion Barclays £90million, Santander £295million, Close Bros, a small specialist lender, £165million..this company is very exposed and Investec..£30 million.

Last year, the Court of Appeal ruled in favour of three motorists who were not informed that the car dealerships they agreed finance deals with were also being paid 25% commission, which was then added to their bills.Around 90% of new cars are bought on finance. Some dealers were paid more in commission if they secured a higher interest rate on the loan. These were known as discretionary commission arrangements (DCAs) and were banned by regulators in 2021.The judgement today will be about whether all hidden, or rather non-declared, commissions are lawful not just the DCA's .

Here's what what one customer said about wanting to take her case to court for a higher payment re a DCA.

The 42-year-old bought a car in 2009 on her first day back at work after maternity leave. Her son was born with difficulties so she needed a car to get to work and multiple medical appointments, because it was impossible on public transport. "I feel I was taken advantage of as a vulnerable new mum," she said.She paid a high interest rate for the blue Corsa. It was not until years later, having read about car finance in the local press that she went to Courmacs Legal to bring a claim.

Don't people have a responsibility to take note of how much interest they are about to pay and try to get a better deal somewhere else ? I suppose if you're in that lady's position she just wanted the car....whatever. I also think that even if the salesman had told her the interest rate she'd have still gone ahead as would most people,thinking that, maybe, they would try and pay it off sooner.

Re commission for securing a loan. What the court finding today is about.

Surely, we all know that sales people get commission ? My wife deals with the holiday company when we book and she always goes through the same lady because that lady has been very good ,very helpful Sort of going the extra mile. My wife asked her if she got commission on every booked holiday and the lady said that she did.. My point here is that she didn't tell my wife she was on commission and my wife asked so that when we book a holiday we go through that lady so that she gets the commision.We know that she would likely be on commission. It's rewarding her for the effort she puts in for us. I just thought it was common knowledge that sales people earn commission when they close a deal. There are some, many maybe, companies that pay low salaries and the rest is made up of commission. I think that's the norm in the US. When we were looking at cars recently, the salesman asked how we were going to pay for it even before he gave us a trade-in price for our car. Knowing why he asked I said probably a loan because I'm sure if I'd said cash we'd have been offered less for the trade-in. We haven't changed it yet but when we do I'll say that or I'd have to see what the cost was going to be. They ask in such a nonchalant way as if it's "oh, by the way"..an afterthought. When we bought the car we have even though we said, at the point of sale, all done and dusted, that we were paying cash the salesman said we could take the loan and pay it off within the no-interest window. I assume I'd pay an early payment fee. I'm darned sure there would be some interest or early payment fee he wasn't telling us about. The only person to benefit from that was the salesman.

What I'm saying is "buyer beware".

 

[srichards]

We know they get commission but not how much. Disclosing how much is the important thing. Someone might get £50 and another dealer £500 and you'd have no idea which was which.

 

[lindsay]

In 1989 I took over an IT team at Mercantile Credit, later known as Barclays Mercantile, who developed supported and ran a system used for car loans by various dealers including Ford dealerships. The system calculated the loan details, but also put on screen a number, not preceded by a £ sign, which told the dealer how much commission they would get for selling the loan, which of course back then included commission on selling PPI. The number was never explained to customers as it wasn't obviously a financial amount. It gave the dealer supposedly the information that would allow him or her to potentially offer an extra few hundred off the car price. I suspect many load systems do similar things even now, or at least up to 2021.

I've long since put in buy claims relating to a number of car purchases, why not, although I totally agree that there is a rather dubious argument for the matter. I wanted the cars, I needed finance, I could have shopped around for the finance, so I don't feel I was mis-sold anything. If the dealers had told me they were getting £xxx for selling it to me, I'd have probably said good for you chum. I may have asked about throwing in some trinkets, but nothing more.

 

[Nod]

I've always paid in full for things, including vehicles. I'm of the view that if you need the credit, you can't really afford the thing.

 

[munch]

I've always paid in full for things, including vehicles. I'm of the view that if you need the credit, you can't really afford the thing.

Lucky you. Not everybody is in such a strong financial position Before we went to company cars, staff had to pay for there own cars a condition was they couldn't be more than 12 months old at time of purchase. I don't know anyone who didn't get a car on HP.

 

[Garry Edwards]

I've always paid in full for things, including vehicles. I'm of the view that if you need the credit, you can't really afford the thing.

That's my view too. I'm simply too poor to afford the cost of credit.

As for the thread topic, the Judgement has now been made, and no doubt the ambulance chasers will be very upset by it, and a lot of people who were quite willing to pay whatever the going rate of interest was when they wanted to buy a car will now be upset that (mostly) they won't be able to recover it.

 

[JohnC6]

We know they get commission but not how much. Disclosing how much is the important thing. Someone might get £50 and another dealer £500 and you'd have no idea which was which.

The problem is that there are two different scenarios.The DCA's I mentioned will have the customer paying that commision,in which case I agree with you. The other is a commision from the loan company and isn't added to the cost of the deal in which case it doesn't matter. Garry's first post has described it exactly.

 

[lindsay]

A comment on BBC News NI tonight was that any payouts will be in the high hundreds or thousand-ish at most. Quite right too really.

I've always paid in full for things, including vehicles. I'm of the view that if you need the credit, you can't really afford the thing.

I often try to do this, but a £55k Discovery is rather a lot of cash to find. Besides which, if you play the game, you take the finance and pay it off before the 0% period ends, it costs you less than paying cash as you get extra discounts.

 

[AndrewFlannigan]

As for the thread topic, the Judgement has now been made, and no doubt the ambulance chasers will be very upset by it...

There will be a lot of back office staff who will, I suspect, be delighted with the judgement, especially if they were previously caught up in PPI.

I was on a team doing PPI reporting and as a contractor, very happy to have the work. The permanent employees, doing a lot of work on top of their usual duties, were less pleased.

 

[Clive K]

The figures are clear, the explanation maybe not. But it is up to the consumer to decide whether to sign based on the figures. They can ask for an explanation of them at any time.

 

[JohnC6]

I've always paid in full for things, including vehicles. I'm of the view that if you need the credit, you can't really afford the thing.

The economy would grind to a halt in that case. Credit ebables people to manage their finances and still have the necessities . It depends on what you mean when you say you pay in full for 'things'. If the washing machine breaks down and you have children you need another one. You need another anyway unless you are prepared to wash clothes in the sink. If your car dies you need to get to work because most times public transport is inadequate or doesn't exist. That applies especially in rural areas.

90% of people pay for a car through dealership loans or their bank. The motor industry would collapse otherwise. What about the farmer who needs a new combine harvester ? They cost tens of thousands of pounds. There's nothing virtous about doing without because you don't have the means to pay up front..Your principle is sound enough but taken to an extreme.

 

[JohnC6]

A comment on BBC News NI tonight was that any payouts will be in the high hundreds or thousand-ish at most. Quite right too really.


I often try to do this, but a £55k Discovery is rather a lot of cash to find. Besides which, if you play the game, you take the finance and pay it off before the 0% period ends, it costs you less than paying cash as you get extra discounts.

Is there not a fee for paying it off so early ? I think the best option is to allow the salesman..(I've never had a female approach us in a showroom,they are usually manning the reception desk..lol..) to think you're going to take up the loan, get the price for your trade-in car and the price of the one you're buying then say you'll pay by bank transfer.

Also, isn't there a long form to complete with all your finances eg..income/outgoings etc ? Your wife's financial details,too ? The salesman sits there asking all these questions. I couldn't be doing with that tbh.

 

[Garry Edwards]

Well, of course the smart way of doing it is to save up and then buy the luxury item with the interest, or just buy cheaper, or to manage without.

As for your example of a combine harvester, you obviously don't know much about them, they don't cost tens of thousands, they start at about a 1/4 of a million but business expenses are different anyway.

 

[JohnC6]

Well, of course the smart way of doing it is to save up and then buy the luxury item with the interest, or just buy cheaper, or to manage without.

As for your example of a combine harvester, you obviously don't know much about them, they don't cost tens of thousands, they start at about a 1/4 of a million but business expenses are different anyway.

Lol..No..True.. I know nothing about them.I knew they were expensive but 1/4 million ? Wow. I should have stuck with something I know the cost of.


Most people, I assume, don't have the means to save up to buy something like a decent car, which they need for reliability, and fund a family, too.

As you know, the ruling was after markets closed here..deliberately. On Wall Street Lloyds bank shares are up 7% as a result of it. They will bounce here on Monday opening, I assume. Same for Barclays.

 

[woof woof]

This looks mostly like a scheme to transfer money from car dealers to solicitors.

We all know commission is involved in lots of things and it's not as if we have to buy from the guy who secretly gets the most commission, we can always go to the dealership down the road unless this commission practice has significantly raised prices across the board.

There can't be many sectors that don't have some sort of in price commission? Will something else be next once the legal profession has rinsed all the car dealers?

 

[lindsay]

As I said above, and to give an actual example: New Discovery circa £52k (2016) all in, £12k deposit; take finance at 0% or low % for a period (say 4 years), but pay off the finance before the final balloon payment its due (PCP). You get the £3k "deposit contribution" discount plus usually a discount of upto say £2k for taking the finance (covered by the dealership's commission on the finance). The only loser is the finance company as they've not learnt any interest but they've paid out commission. The buyer has saved £5k on the book price that would have been quoted for a cash sale. In a cash sale there isn't a great deal of room for the sales person to shave money off as incentive, unless the dealership is needing to hit targets and is willing to take a hit on the margin.

However, the case for this commission compensation is pretty pathetic, I agree, and only the claims companies are winners. On the Beeb online this morning there is the example of a guy who did get a refund of DCA, but he was quoted as saying that he had paid off the finance but discovered he still owed the cash price of the car - clearly referring to the balloon payment at the end of a PCP deal. So a perfect example of someone utterly failing to understand what he was doing when he signed the finance agreement.

 

[Nod]

In a similar situation, I saved for the 3 years until I could afford the car I wanted by which time the original owner had taken the significant depreciation hit. OK, the car was by then 3 years old but still felt brand new!

 

[srichards]

Dealers selling finance are FCA regulated and that means treating customers fairly. It's also astounding how dumb a lot of people are when it comes to maths and finance. The person selling the finance has to explain it properly.

PCP is basically a way for manufacturers to hide excessive list price inflation. If everyone had to buy on HP then I think new car sales would plummet but it's much better to make people buy an actual chunk of the car and be completely paid off at the end rather than having a random balloon payment based on smoke and mirrors maths. A load of manufacturer finance companies are in a lot of trouble as they have got this number wrong as they have been over estimating how much their average bits of metal will be worth after 3 years.

If it were up to me I'd ban PCP and say HP only from say 2027 so they have time to organise themselves into not offering it as much. HP is far more straight forward. Deposit and then equal payments of what is left. That £52k Land Rover then feels like a £52k Land Rover and not one just over half that s you are effectively deferring half the payments and with low interest environment it doesnt feel like you are buying the £52k car as the interest portion is relatively small.

If comissions are distorting people's professional judgement then they shouldn't be allowed. If a bigger comissions stops someone recommending a more suitable product then it's wrong.

Unfortunately protecting stupid people from themselves is set in consumer regulations. There are a lot of vultures out there and it isn't that nice to let them just pick over and take advantage of every one of those stupid or financially illiterate people that walks through the door.

 

[LCPete]

Dealers selling finance are FCA regulated and that means treating customers fairly. It's also astounding how dumb a lot of people are when it comes to maths and finance. The person selling the finance has to explain it properly.

PCP is basically a way for manufacturers to hide excessive list price inflation. If everyone had to buy on HP then I think new car sales would plummet but it's much better to make people buy an actual chunk of the car and be completely paid off at the end rather than having a random balloon payment based on smoke and mirrors maths. A load of manufacturer finance companies are in a lot of trouble as they have got this number wrong as they have been over estimating how much their average bits of metal will be worth after 3 years.

If it were up to me I'd ban PCP and say HP only from say 2027 so they have time to organise themselves into not offering it as much. HP is far more straight forward. Deposit and then equal payments of what is left. That £52k Land Rover then feels like a £52k Land Rover and not one just over half that s you are effectively deferring half the payments and with low interest environment it doesnt feel like you are buying the £52k car as the interest portion is relatively small.

If comissions are distorting people's professional judgement then they shouldn't be allowed. If a bigger comissions stops someone recommending a more suitable product then it's wrong.

Unfortunately protecting stupid people from themselves is set in consumer regulations. There are a lot of vultures out there and it isn't that nice to let them just pick over and take advantage of every one of those stupid or financially illiterate people that walks through the door.

Yes exactly
A few years ago we had found a nice second hand car at a main dealership
We was happy with the price and the car but needed finance at that point we asked the salesman what the APR was he literally wouldn’t tell us just asked what we wanted to pay per month
We walked away and found the right car at the local Toyota dealer who was completely open with everything

 

[Garry Edwards]

Going off at a tangent, a friend is a minicab driver. He bought a Toyota hybrid 2 years ago, second-hand for £18K because, round here at least, all minicabs have to be either Hybrid or electric, which pushed the prices up dramatically. He bought in on HP, over 3 years.

His car was written off in a crash 3 weeks ago, so he now has no car. By pure coincidence (?) the amount outstanding was £7200 and his insurers valued the car at the same figure, so they cleared the debt, which has left him with nothing. He is now paying £200 per week for a hire car, which is a waste of money and effort as he works for Uber, and was struggling to make a living even with his own car.

He also has minor injuries, he can't afford a solicitor so will probably have to claim against the other driver (who drove into him ignoring a stop sign) via one of the dodgy no win no fee cowboys, so he won't get anywhere near the true value of his injuries.

I had a vaguely similar experience, a lifetime ago. I've only ever bought 3 cars new, this was the first, and I've only ever bought on finance once, never again. My car literally crashed and burned when the offside tyre burst on the M4. The insurance company paid the new car value to the finance company, which left me to pay all of the finance charges. Never again.

The whole system is corrupt.

 

[beyond the blue]

We know they get commission but not how much. Disclosing how much is the important thing. Someone might get £50 and another dealer £500 and you'd have no idea which was which.

I bought a new Lexus. The dealer told me (without me asking) they get commission off Lexus finance and would I like to know the amount, after saying yes they gave me the figure of £175. They were very open about everything.

 

[lindsay]

Yes exactly
A few years ago we had found a nice second hand car at a main dealership
We was happy with the price and the car but needed finance at that point we asked the salesman what the APR was he literally wouldn’t tell us just asked what we wanted to pay per month
We walked away and found the right car at the local Toyota dealer who was completely open with everything

Interestingly similar experience here with my Mazda. I was in saying exactly what I wanted, they had an ex-demo to match, so we then started haggling. I was asking the price of the car, the salesman was asking how much I wanted to pay each month. I said I would need to use finance for part of the price (I think I had £18k and needed another £12k) so I wanted to know the price to know how much finance I required, so I could shop around for the loan. It took me quite a while to get anything out of him - couldn't get a price at all, but I said I'd pay the finance off over two years, he gave me a monthly sum, so I multiplied the monthly by 24, told him how much that was and asked for the calculations on the finance, which he eventually and reluctantly gave me. So finally after about 45 minutes of going round in circles, I found out how much I needed to borrow exactly, and took an HP deal off him in preference to a bank loan that I got an quote for whilst we were there.
But it was shocking that it went that way. It underlined my theory that these days all anyone cares about is(people under about 40 anyway) is the monthly cost of things - houses, cars, clothes etc - because ownership is for mugs, it seems. Hence why you see so many Land/Range Rovers of different sorts, and Teslas, in areas where incomes are not that high. They get PCP deals with low monthlies, and just never own a car. ........until they can't afford the monthlies any more and become either car-less or have to buy a wreck.

 

[mj4456]

Worked in the motor trade for many years, hated doing finance deals, time consuming work with nothing in it for me, we had a chart from the finance company showing minimum rates I could charge based on age of vehicle involved, This sat on my desk for all to see, we were based on a street with several sales outlets along it and we worked on the premise that if my car cost £20\£30 a month -or whatever- than was available elsewhere in the street, we would get the sale, I sold cars not finance, that was the banks job, Give your customers a good deal, they’ll come back for repeat business, rip them off you get a bad reputation.
Im fortunate I can pay cash for purchases, usually the cost of finance is more than the money will earn in the same time scale so cash is king,
There were times when only sub prime finance deals were the only way some clients could get finance and interest rates were eye watering, but it was all shown up front and customers knew what was involved because of their situation, thankfully I used an outside firm who were specialists in the culture and I had nothing to do with it.

 

[Dave Canon]

I've always paid in full for things, including vehicles. I'm of the view that if you need the credit, you can't really afford the thing.

The last car I bought new was in 2014. I was happy to pay in full but the Dealer was very keen for me to sign up to a finance deal (no doubt the dealer benefited). For me it reduced the price of the car by £1,000, there was no interest to pay and I paid off the remainder after 5 years. The financer was Barclays, I can only assume that they do this on the basis that not everyone will pay it off and thus then pay Barclays lot of interest. Now my car is 11 years old, I am thinking that I may need to replace it soon.

Dave

 

[JohnC6]

The last car I bought new was in 2014. I was happy to pay in full but the Dealer was very keen for me to sign up to a finance deal (no doubt the dealer benefited). For me it reduced the price of the car by £1,000, there was no interest to pay and I paid off the remainder after 5 years. The financer was Barclays, I can only assume that they do this on the basis that not everyone will pay it off and thus then pay Barclays lot of interest. Now my car is 11 years old, I am thinking that I may need to replace it soon.

Dave

Yes, you're right,Dave. The salesperson will get a nice commission. Then Barcs et al work on the basis that people won't pay it off on time.

As I mentioned in my other post,I don't want to be completing the credit form..infact ,I assume the salesman will sit there asking all the questions with all personal details and having a credit check done..it's fine,anyway..I think the last time I had credit was when I paid of the mortgage 10 years or so early and before that goodness knows..40-odd years ago ? I think I'll just get the deal then ask to see the credit application form, then say no, I'll pay cash. If he says he can't give the same deal I'll walk out. No problem. I bet I don't get as far as the door.

 

[Dave Canon]

John, since buying that car with zero interest credit, my credit rating has been 999; no advantage you might suggest if you do not want credit but it does mean that if my credit rating drops, I will need to investigate and see if someone is using my identity. I initial took your view in not wanting to fill in the credit form and started to walk away mentioning the dealer in Worcester that I had previously dealt with. That is when they then came up with the £1000 off the price which was presumably always available but they would have kept it themselves.

Dave

 

[Suvv]

I saved for 45 years so I could buy my house for cash - never paid interest in my life !!

 

[mj4456]

Let’s look at this way, would you get a big job done on your house with only one quote? No, so when borrowing money for a car why not check with the dealer, the bank, and the dodgy guy down the pub, at least check the figures and do the maths.
Check before you sign, it’s your money, your responsibility.

 

[JohnC6]

I see the FCA is setting up a scheme for those involved in the DCA loans. The dealer/salesman gets more commission the higher the interest rate he can screw the customer for. The cost could be up to £18bn. Experts think aroun £15/16bn. Still quite a lot but nowhere near what the industry was anticipating had all three cases gone against them..£50bn plus. More than the PPI scandal. They're a bunch of rogues.Rogues in suits.

 

[munch]

I saved for 45 years so I could buy my house for cash - never paid interest in my life !!

Well done you. So where did you live whilst you were saving to buy your house?

But most of us don't have that luxury.

 

[AndrewFlannigan]

I wonder if the FCA will allow the lenders to go after the salesmen for the commission?

That could turn nasty, if they do.

 

[Suvv]

Well done you. So where did you live whilst you were saving to buy your house?

But most of us don't have that luxury.

My comment was tounge in cheek, having a gentle dig at those who say that if you need the credit and if you cannot afford it then don't buy it

 

[mj4456]

I used to run people through the loan documents, especially the page showing, amount borrowed-charge for credit(interest)-interest rate-repayment period-monthly payment. Nice and simple, much better when folk paid cash or bank loan, no work for me, quicker handover so more time to sell cars, that’s what I got paid for.

 

[JohnC6]

'You and Yours', which is on BBC Radio4 from 12 noon to 1.00pm,daily, is featuring this tomorrow, asking people to call or Email their expreinces. I'll have to listen on catch-up.

 

[BillN_33]

if the law was broken then there should be a claim for compensation - (I think that the Supreme Court indicated that in their opinion no laws had been broken in the cases before them)

BUT to start to bring in legislation to act retrospectively is another example of the mess that these so called "regulators" always seem to create, IMHO

will all loan, credit and other similar agreements now be considered to decide if they are "fair" or not

 

[AndrewFlannigan]

...will all loan, credit and other similar agreements now be considered to decide if they are "fair" or not

I think that there's a good case for a general rule, that all such agreements should be submitted to the regulator for approval, before they are used.

An ounce of care is better than a pound of repair.

 

[mj4456]

Applicants need to read loan agreements and compare rates and charges, nobody holds a gun to their heads forcing them to sign, if companies are going to pay out millions/billions in compo, rates will rise to cover the costs, then everybody loses.

 

[munch]

Applicants need to read loan agreements and compare rates and charges, nobody holds a gun to their heads forcing them to sign, if companies are going to pay out millions/billions in compo, rates will rise to cover the costs, then everybody loses.

bit difficult when you are sat in a car dealers showroom.

 

[AndrewFlannigan]

bit difficult when you are sat in a car dealers showroom.

Agreed.

That's why I think that one of the regulator's primary duties should be to standardise financial agreements.

 

[srichards]

Also I think not everyone realises if you get dealer finance directly on the car you have full section 75 protection but if you get a loan from a bank you don't.