Honda stops car finance.

[ChipChop]

Following the court of appeals judgement last Friday that "a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment".

Honda 'pulls car finance and delays customer handovers' in wake of Close Brothers ruling – Car Dealer Magazine

Lloyds (Black Horse finance) assessing the impact of ruling.

Lloyds Bank 'assessing potential impact' of car finance ruling on commissions – Car Dealer Magazine

Lloyds Bank is 'assessing the potential impact' of the Close Brothers court ruling which has seen other finance providers pause payouts. The court ruling

cardealermagazine.co.uk

 

[st13phil]

I very much doubt Honda will be the only car finance provider refusing to write new business in the immediate future. Cars have long been the second largest consumer purchase after housing, and it's extraordinary that the finance industry has escaped disclosure of commissions and inducements to brokers for so long.

That said, I can't see this being anything more than a temporary pause while compliance processes are put in place as finance is integral to the profitability of all manufacturers.

 

[E55BOF]

Surely there weren't many people who did not realise commision was paid? It's really about disclosure of the details, not of the fact, and I wouldn't have thought it would be difficult to knock up some sort of document for would-be buyers to sign as agreeing to the deal.

 

[BIGDOG]

Surely there weren't many people who did not realise commision was paid? It's really about disclosure of the details, not of the fact, and I wouldn't have thought it would be difficult to knock up some sort of document for would-be buyers to sign as agreeing to the deal.

As I understand it, the issue has always been that dealers had the ability to ramp up the rate in order to earn more commission.
Given this culture has been so prolific and is now well publicised they, no doubt, are not keen to disclose this info.
The question is though, how have they avoided declaring commission so far?

 

[st13phil]

Surely there weren't many people who did not realise commision was paid?

Bearing in mind how financially illiterate many of our population seem to be, I suspect there are a large number who don't realise that commission is paid, and of those that do I suspect most are more focussed on "how much will it cost per month for this shiny bit of metal" than how much the dealer is getting - at their expense - for providing the finance.

 

[sgregory124]

Handy if the FCA find against the finance firms, I’ve got two active claims in myself for non-disclosure of a DCA. About time the consumer stopped getting treated like a fool to be ripped off - in my opinion.

 

[ALFAitalia]

I very much doubt Honda will be the only car finance provider refusing to write new business in the immediate future. Cars have long been the second largest consumer purchase after housing, and it's extraordinary that the finance industry has escaped disclosure of commissions and inducements to brokers for so long.

That said, I can't see this being anything more than a temporary pause while compliance processes are put in place as finance is integral to the profitability of all manufacturers.

As someone who sells finance I have had to tell people that the company make commission on finance for ages.... but only if they ask. Imo I think it's outrageous.... how many other businesses have to tell you how muck profit they make on anything they sell. Do you guys in business tell your customers how much profit you make?.... thought not. They cut direct commission to individual salesman years ago after the PPI scandal. So only the company make money on finance sales directly. It was to make sure that we sell the deal that's best for the company... not just for me.... but since we only use one finance house I can only offer one deal... even the rates are fixed now so I can't up it for certain customers if needed like I used too.....for good reason before you say. How much we make on selling that product is no bodies business....its not even that much money these days. More nonsense to comply with. By the way we have not been told not to propose or complete finance... even though we work in exactly the way as the car boys.

 

[AP211]

I've always felt a little uneasy about the lack of regulation in the car financing market. Not so much about the dealers getting commission but more so the lack of regulation to check whether the customer is getting the best offer for them interest rate wise vs what's best for the dealer commission wise.

Last year I went to see a car with a friend and he was offered 9%. Upon declining and walking away he was then told it could be lowered to ~7%.

This is something unimaginable in the mortgage industry. Brokers are constantly tracked to make sure they are looking at deals that are best for the customers scenario and failing to do this has serious repercussions for the individual and the broker. Every single mortgage offer a broker recommends to a customer has gone through risk assessment to ensure the customer is being offered the best possible deal with the options the broker has as its disposal.

As a side note, how much brokers earn from commission via the lender is listed in your mortgage offer so this isn't something new with car financing.

 

[Bobby Dazzler]

I've always felt a little uneasy about the lack of regulation in the car financing market. Not so much about the dealers getting commission but more so the lack of regulation to check whether the customer is getting the best offer for them interest rate wise vs what's best for the dealer commission wise.

Last year I went to see a car with a friend and he was offered 9%. Upon declining and walking away he was then told it could be lowered to ~7%.

This is something unimaginable in the mortgage industry. Brokers are constantly tracked to make sure they are looking at deals that are best for the customers scenario and failing to do this has serious repercussions for the individual and the broker. Every single mortgage offer a broker recommends to a customer has gone through risk assessment to ensure the customer is being offered the best possible deal with the options the broker has as its disposal.

As a side note, how much brokers earn from commission via the lender is listed in your mortgage offer so this isn't something new with car financing.

With car finance at a main dealer there is only one option, and that’s the manufacturer’s finance. Even independent dealerships tend to partner with one finance company only - it may change over time but it’s usually only one at a time.

As a result there aren’t really many options to consider for a personal purchase beyond HP or PCP, that’s if. The other variable is the rate, which is the thing that’s perhaps more unusual in car finance, there is often a range the dealer can choose from, rather than a single rate set by the lender.

 

[AP211]

With car finance at a main dealer there is only one option, and that’s the manufacturer’s finance. Even independent dealerships tend to partner with one finance company only - it may change over time but it’s usually only one at a time.

As a result there aren’t really many options to consider for a personal purchase beyond HP or PCP, that’s if. The other variable is the rate, which is the thing that’s perhaps more unusual in car finance, there is often a range the dealer can choose from, rather than a single rate set by the lender.

I can see the main dealer wanting to only do the finance themselves but why would an indy limit themselves to one company? They're in the finanace selling business just as much as the car selling business these days so seems counterintuitive to limit your options like that. What am I missing?

 

[ALFAitalia]

You, the dealer, will get a better deal if you just use one finance lender... in much the same way you usually will pay less commission when selling your house if you only list with one estate agent. Not too mention they are often the same company that finances your new and used stock and the more retail finance you put their way the lower your stocking rates are... if you have a few millions worth of stock that will save you far more money than you will make buy using another lender... even if they do give you more commission per deal compared to your main one.
We do have another finance house for sub prime business.... but we only use them with a customer if our main house declines them. They do give us slightly more commission..... but the customer will be paying a higher rate of interest to cover the higher risk of them defaulting.

 

[m80]

When I've asked people what interest they are paying on their car finance they never know, it astounds me.
As above, it will be if they feel (often hope) they can afford the monthly payment for this thing of beauty that impresses them.

I don't see why it is the responsibility of the profit making organisation to ensure the financial well being of the 'potentially' gullible. It's not as if these are pay day loans.
Perhaps the finance companies might employ better affordability checks, but in truth I 'aint a clue if they do already.

 

[TrueSpirit]

As someone who sells finance I have had to tell people that the company make commission on finance for ages.... but only if they ask. Imo I think it's outrageous.... how many other businesses have to tell you how muck profit they make on anything they sell. Do you guys in business tell your customers how much profit you make?.... thought not. They cut direct commission to individual salesman years ago after the PPI scandal. So only the company make money on finance sales directly. It was to make sure that we sell the deal that's best for the company... not just for me.... but since we only use one finance house I can only offer one deal... even the rates are fixed now so I can't up it for certain customers if needed like I used too.....for good reason before you say. How much we make on selling that product is no bodies business....its not even that much money these days. More nonsense to comply with. By the way we have not been told not to propose or complete finance... even though we work in exactly the way as the car boys.

I think you hit the nail on the head. You said you had to make sure you made the best deal for the company. As a potential broker in a transaction, you should be making the best deal for the CUSTOMER you are acting on behalf of or at least give them all the pertinent facts upfront. The FCA is very clear on this. These shady practices should be brought to a stop immediately. A lot of car dealerships already do so many shady things and this is one step too far

 

[Mactech]

I'm one of those people who just regard financing as just another tax on the costs of motoring. Whilst I have, at one point, had a bank loan to help buy a car, I would never subject myself to the additional cost of finance.
But then I'm also one of those people who is unlikely to buy anything advertised on TV, figuring that their product would be cheaper if they didn't pour millions into an advertising campaign......but if everyone was like me, I guess half of the world economy would collapse

 

[E55BOF]

As above, it will be if they feel (often hope) they can afford the monthly payment for this thing of beauty that impresses them.

Not unlike getting married, then, only less permanent....

 

[ALFAitalia]

I think you hit the nail on the head. You said you had to make sure you made the best deal for the company. As a potential broker in a transaction, you should be making the best deal for the CUSTOMER you are acting on behalf of or at least give them all the pertinent facts upfront. The FCA is very clear on this. These shady practices should be brought to a stop immediately. A lot of car dealerships already do so many shady things and this is one step too far

Wa supposed to say "best deal for the customer".....not company. Thats what cones if posting when watching TV!. As for those saying about shady practises and lack of regulation....really??? We are heavily regulated by the FCA, we get spot checks we all have to be qualified and I have to take 2 exams a year... which are not easy....no pass means no selling finance until you do. The exams have changed a lot in the near 40 years on and off I've done them....it was all about compliance and making sure the paper work was 100 percent...now there is hardly any of that...being online you can't really go wrong...now it's all about your responsibility to the customer...because like everything else no one is responsible for their own actions anymore. I have to check that they are mentally capable of making the decision, whether they are being coerced into talking out finance for someone else, do an online check to make sure they are likely to be able to afford it. If someone takes out a loan they can't afford imo that's their own stupid fault... but not in the eyes of the FCA. The last thing we need is anymore regulation thanks.

 

[sgregory124]

The last thing we need is anymore regulation thanks.

Err, clearly you do. The single worst thing about buying cars, is the process and financing cars. If I could buy a car without talking to a salesman face to face, I would do it all the time.

It means I have to walk into everyone potential purchase as if I’m about to be conned. You can see them working through the playbook when they’ve got the ‘hook’ in - next it’s time to wheel out the ‘business manager’, who in reality is just going to try and rinse you for more money with products you don’t need - GAP insurance being one of them.

The whole thing is questionable in my opinion. But that being said, not all companies are like that - the Indy I used for my current car were utterly faultless, because (I assume) they weren’t tied to a manufacturer or any one lender.

 

[markjay]

'Best deal for the customer' and 'transparency regarding commissions' aren't the same thing.

 

[BIGDOG]

Ever firm which is regulated by the FCA have got used to their governance, the motor industry are still new to this and are kicking back.
It’s pointless, the FCA will impose their will upon the industry just like it has the others.
In my view it’s overdue. We are not talking peanuts here, the motor trade needs to up its game.

 

[ALFAitalia]

It’s pointless, the FCA will impose their will upon the industry just like it has the others.

They all ready have......it happened years ago!!!