The car finance market is in chaos after a shock court ruling left banks and lenders scrambling to save it from collapse.
Lloyds Banking Group has now scrapped their commission payments to dealers, after a Court of Appeal judgement ruled car salesmen must inform their customers about bonuses, commissions and fees they get from lenders.
The biggest high street motor finance provider, they have had to abolish bonuses to car dealers through a ‘no commission’ contract’. Their Black Horse division oversees £15bn of loans.
It comes after three complainants won their Court of Appeal battle, saying they were mis-sold motor finance. They ruled that ‘a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment’, CityAM reports.
It has had to ‘act quickly’, their chief financial officer William Chalmers told analysts, as he said he wanted to carry on lending.
Lloyds Banking Group has now scrapped their commission payments to dealers, after a Court of Appeal judgement ruled car salesmen must inform their customers about bonuses, commissions and fees they get from lenders. Pictured: File photo
It comes after three complainants won their Court of Appeal battle, saying they were mis-sold motor finance. Pictured: File photo
They join the likes of Close Brothers, one of the defendants in the Court of Appeal case, who have frozen lending as they prepare to challenge the decision in the Supreme court.
Lenders including Mann Island, MotoNovo, V12, Zopa, Close Brothers, Secure Trust Bank and Northridge have all stopped lending in the last 72 hours, The Telegraph reports.
One senior car dealer told CarDealer it could wreck ‘financial Armageddon’ for those who are reliant on their commissions if the issues are not quickly tackled.
The industry newspaper said that showrooms have been unable to deliver cars as car finance companies were forced to stop paying out on deals already written up.
Nine in ten cars are bought by motorists using car finance, Autotrader reports, and fears have been sparked that this could hit the market hard.
And the move could affect hard working people who have bought cars using the schemes and now depend on them to do their jobs.
Lloyds shares have fallen by nearly 13 per cent in less than a week, as analysts at RBC Capital say the court decision could end up costing them as much as £3.9bn, The Guardian reports.
Commenting on the Court of Appeal decision on motor finance cases, Stephen Haddrill, Director General of the FLA, said: ‘This is a significant and unexpected judgment, the implications of which stretch far beyond the motor finance sector, making it an issue that demands the immediate attention of the Financial Conduct Authority.’