Commission Disclosure
Over the course of the last week, you may well have seen the finance pages of several newspapers and numerous social media platforms all talking about the issues effecting the car finance industry and what some have termed the “mis-selling” or “hidden” commissions being paid to motor dealers”. This breaking news follows a very recent Court of Appeal ruling. What has been far less publicised are the far wider implications for the UK finance sector.
Due to the industry-changing nature of this ruling, we wanted to take a moment to explain what has happened in more detail and what that means here at Fast Car Finance as a result.
The Court of Appeal Ruling
On 25th October 2024, the Court of Appeal handed down judgement on Johnson v FirstRand Bank Ltd, Wrench & FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd, three test cases concerning the payment of commissions to car dealers arranging motor finance.
The Court of Appeal ruled that in each of the three cases before them, it was unlawful for car dealers to receive a commission from a lender providing motor finance to a customer, unless it was properly disclosed to the customer and that they gave informed consent to the commission payment being made.
Whilst this ruling was assumed to concern solely the provision of motor finance when sold by a motor dealer, the implications of the ruling have drawn in all forms of finance for which an introducer or broker is paid a commission.
Following what was very much an unexpected ruling from the Court of Appeal, on Monday 28th October, the majority of UK motor finance providers essentially paused all new business, this also extended to those lenders providing asset and equipment finance to UK SME’s. In essence, the ruling impacted way beyond consumer motor finance and has extended into the business to business market.
Surmising the ruling, lenders, motor dealers and brokers simply didn’t have the correct processes or documentation in place to proceed with business in a way that was deemed to be lawful.
Thankfully, the majority of lenders are now open for business again, complete with new document suites and updated operating guidelines. These new processes and procedures ensure that how we do business operates within the law as it is now being interpreted.
The Previous Position
As a current or previous customer of Fast Car Finance, you will be aware that we do not directly charge you a fee our service (i.e. the sourcing and securing of car finance). Instead, we rely solely on being paid by way of a commission by the finance company when your car finance facility has been activated. Fast Car Finance has always been very clear that any commission payment we receive, is included within the finance charges that form part of the finance agreement.
Indeed, we have been disclosing the existence of a finance commission within our Terms of Business for many years, something we elected to do well before any regulatory requirement to do so came into force.
With regards to the provision of broking “regulated” motor finance (so that which falls under the Consumer Credit Act 1974), governed by the Financial Conduct Authority (FCA), the requirement to disclose the existence of a commission has been a requirement for many years.
It is important to also note that with effect from 2021, the ability for car dealerships and motor brokers/intermediaries to influence interest rates and therefore the amount of commission payable has been removed by the industry regulator. Interest rates are now pre-determined by the lender providing the finance, to include paying a fixed commission to the third party arranging the finance.
The New Position
Whilst brokers and motor dealers (finance intermediaries) being paid a commission has always been made clear by the vast majority of those in the motor trade, the ruling now requires those arranging finance for their customer to proactively disclose the exact amount of commission paid and to obtain the customers signed consent for the payment of that commission before the finance agreement can complete.
The question of when the commission should be disclosed remains one under active discussion with many lenders in the sector suggesting that the amount of any commission can be disclosed shortly prior to completion.
Please rest assured that Fast Car Finance has always sought to adopt a level of transparency that goes way above any industry “minimum standards” and we continue to do so under the new disclosure rule.
From the very beginning of our conversation any quotation we provide you or one of your clients with will clearly detail the likely commission amount that will be payable to us should you proceed. We feel this is the most ethical way of doing business.
Clarification Around Commission
We also want to provide a brief explanation around how commissions in our industry work, enabling you that you to gain a better understanding of how the sector operates.
Lenders pay us a fixed commission over which we have no influence. The commission we received is typically calculated as a percentage of the amount you borrow. In almost every case, that commission will be between 1% and 5% of the amount financed. It is standard for lenders to pay us a higher percentage on smaller loans and vice versa.
The commission payment we receive from the lender allows us to generate sufficient revenue to meet our fixed costs which includes our premises, employee salaries, IT & data security, and of course ever-increasing compliance obligations
Summary
Since our inception in 2006, our aim has always been to achieve an outstanding result for customers seeking car finance. We have always explained and made it clear to customers new and old that a commission payment is built into any finance quotation we issue.
We would also like to take this opportunity to underline that unlike some finance intermediaries operating in our marketplace, Thames Valley Asset Finance Limited T/as Fast Car Finance is directly authorised and regulated by the Financial Conduct Authority (FCA) for credit broking. For the additional comfort of our clients and intermediary partners, we are also members of the National Association of Commercial Finance Brokers (NACFB) our industry trade body.
Thames Valley Asset Finance Limited commenced trading in 2006 as an independent and privately owned commercial finance brokerage, with Fast Car Finance evolving as our consumer car finance brand in 2010. We continue to have direct access to many (but not all) of the UK’s leading Banks and Finance Houses and we remain committed to offering a range of finance solutions to both consumers (via Fast Car Finance) and UK businesses (via TVAF Asset Finance & Business Loans).
If you have any questions or wish to know more about how we operate, please get in touch with one of our team.
Thank you.
