Car Finance

[Boomer54]

The court decision against the lenders for car finance has probably hammered yet another nail into the coffin that is known has EV. If the latest news from Car manuafcturers in the form of VW was not enough bad news for the Industry then a redrawing of the lines on lending ought to be a fair warning to Govt that their plans for an EV transition are in danger of falling off a cliff. It should be clear to all that a barrage of financial claims ends up in cost terms in just one place eventually and that is with the users of finance. The lenders are merely the conduit by which that additional cost gets passed along. If that looks like being you then you should be seeing it coming.

[Linas.P]

I think context is important... are you referring to this ruling:

https://www.theguardian.com/business/2024/oct/28/lloyds-court-ruling-black-horse-compensation

In which case it has little to do with BEVs, just dirty practice of offering commission ("kick-backs") for using certain lender. It is surprising to me that car dealers are not on the hook as well, because they share responsibility of offering bad deal to the customer, but I guess they are not regulated by FCA, so FCA only cleans it backyard. 

To understand what is happening here - say you buying car on lease, the dealership runs the quote for you and the best rate they can get is let's say 5% from ABC Bank, but they know that XYZ Bank which would finance the same deal for 6% offers them say 2% commission, whereas ABC Bank only pays 0.5%. So they tell you that the best they can offer is 6% and don't mention 5%. 

Now what FCA is saying - these arrangements should be transparent... I personally would probably go further and say that commission should be outlawed altogether. There is no justifiable reason why it would exist in this transaction - dealer makes money by selling the car, so they don't need extra commission to make their business model viable and banks (lenders in general) are already making money from interest rate on loan. It is 100% anti-consumer, because the only outcome is that consumer pays higher rate for absolutelly no reason. And it is also anti-competitive, because instead of offering better rate and competing, lender basically bribes intermediary into selecting their overpriced load to consumer.

Their defence of "it is not covered by motor commissions review" will not work, because this falls under much wider TCF regime and more recently Consumer Duty. There is absolutelly no chance that they can argue this is fair treatment of the consumer.

[Boomer54]

1 hour ago, Linas.P said:

I think context is important... are you referring to this ruling:

https://www.theguardian.com/business/2024/oct/28/lloyds-court-ruling-black-horse-compensation

In which case it has little to do with BEVs, just dirty practice of offering commission ("kick-backs") for using certain lender. It is surprising to me that car dealers are not on the hook as well, because they share responsibility of offering bad deal to the customer, but I guess they are not regulated by FCA, so FCA only cleans it backyard. 

To understand what is happening here - say you buying car on lease, the dealership runs the quote for you and the best rate they can get is let's say 5% from ABC Bank, but they know that XYZ Bank which would finance the same deal for 6% offers them say 2% commission, whereas ABC Bank only pays 0.5%. So they tell you that the best they can offer is 6% and don't mention 5%. 

Now what FCA is saying - these arrangements should be transparent... I personally would probably go further and say that commission should be outlawed altogether. There is no justifiable reason why it would exist in this transaction - dealer makes money by selling the car, so they don't need extra commission to make their business model viable and banks (lenders in general) are already making money from interest rate on loan. It is 100% anti-consumer, because the only outcome is that consumer pays higher rate for absolutelly no reason. And it is also anti-competitive, because instead of offering better rate and competing, lender basically bribes intermediary into selecting their overpriced load to consumer.

Their defence of "it is not covered by motor commissions review" will not work, because this falls under much wider TCF regime and more recently Consumer Duty. There is absolutelly no chance that they can argue this is fair treatment of the consumer.

Linas, the ruling impacts car finance in general. Of any ilk. I only connected it to EV in so far as it was bad news for the Industry doubling down as it were on the other recent bad news from manufacturers regarding their difficulties in maintaining EV volumes. I refer of course to the release by VW earlier this week.

Frankly I don't give a hoot about so called bad practice in finance. This is only the latest in a long line of same issues that on the one-hand wrist slap lenders for failing to realise how thick their clients were in not being able to read a contract. That's me being a bit unkind, but the point I am making is if you borrow money you always have the right to say no, or tell them to improve their offer , or shove it. The fact you don't have their access to information is as far as I am concerned immaterial. You are the borrower it's entirely your choice to accept , or reject what is being offered. Hope this puts to bed any ideas people might have about me being anything, but a dyed in the wool capitalist.

[Linas.P]

8 minutes ago, Boomer54 said:

Linas, the ruling impacts car finance in general. Of any ilk. I only connected it to EV in so far as it was bad news for the Industry doubling down as it were on the other recent bad news from manufacturers regarding their difficulties in maintaining EV volumes. I refer of course to the release by VW earlier this week.

Frankly I don't give a hoot about so called bad practice in finance. This is only the latest in a long line of same issues that on the one-hand wrist slap lenders for failing to realise how thick their clients were in not being able to read a contract. That's me being a bit unkind, but the point I am making is if you borrow money you always have the right to say no, or tell them to improve their offer , or shove it. The fact you don't have their access to information is as far as I am concerned immaterial. You are the borrower it's entirely your choice to accept , or reject what is being offered. Hope this puts to bed any ideas people might have about me being anything, but a dyed in the wool capitalist.

You can have your opinion, but that is not what I am talking about. What I am talking about are the rules which lenders have to follow, they are in "regulated industry". It does not matter if it is material or immaterial in your opinion, but FCA told them they can't hide such details. That is also just my opinion, but I agree with FCA here - there is no justification for these kickbacks and no reason for dealer not to give customer the best deal, they should be ONLY intermediary when it comes to finance and they should make their money from car sale, not from kickbacks. Also you need to realise that buyer in such arrangements often has no choice e.g. workplace scheme won't let you to choose where you get car, so it does not matter if you like the rate or not, that is your only option... and you being shafted by like 2% because lender an dealer has this secret kickback arrangement between them. I just can't see how you see no issue here... you should pay 5%, but you say 9% and then dealer and lender shares the the margin by which they ripped you off. 

Also also... you imply that people have any knowledge in such dealings, but vast majority don't... and on one hand we can say they are stupid, but on other hand there is no way to have that knowledge unless you are car dealer yourself, people let's say on average buy car once in 5 years, 100 factors contribute to the purchase decision, price and interest on lease is just one out of 100 factors in that decision... and even then the rates are opaque. There is realistically, no way average buyers would be able to have opinion on this, and this means that to get such knowledge they should go to say 10 different dealers, negotiate same deal, on same car and then compare the rate offered by all 10 dealers to choose one that has lowest rate?! This is just not practical... also maybe dealer that offers best rate has car in the colour you don't like and without sunroof which you want. Again - finance rate is just not the most important thing making purchase decision, but one would assume that when dealer says "this is the best rate we can offer" it is actually the BEST rate. And I don't want to expand too much into legal rabbit hole, but legally speaking all deals are done on the basis of "goodwill" and if it is proven that one party made a deal not in "goodwill", then that deal is illegitimate. There is NO WAY you can say deal was done in good will, when dealer obviously scammed you by 2%, they could have offered finance for 5%, but because of conflict of interest they offered the higher rate from company where they get kickback. And this is what TRF and Consumer Duty is about, and lenders are regulated, they have to make sure they act in the interest of consumer (by law). 

It has nothing really to do with BEV sales, they are failing and will fail because of very simple and inherent reason - BEVs do not work for 80%+ of the drivers and for ~20% for whom they work already have them. In short BEV market reached the point of saturation. Until something changes e.g. there is new regulation where allowing chargers at home are mandatory, number of public chargers increases like 10 times, or Battery charging time decreases 10 times, this not going to change, you can provide best possible financing option people still can't drive BEV if they have nowhere to charge it. 

Finally, going back to your initial assessment i.e. that it will further hurt the sales of BEVs, I don't believe that is true, it probably helps with financing costs on the buyer side, basically financing should become more transparent and therefore overall cheaper, so I can't see how this ruling would make it any worse for BEVs? 

[Boomer54]

21 minutes ago, Linas.P said:

You can have your opinion, but that is not what I am talking about. What I am talking about are the rules which lenders have to follow, they are in "regulated industry". It does not matter if it is material or immaterial in your opinion, but FCA told them they can't hide such details. That is also just my opinion, but I agree with FCA here - there is no justification for these kickbacks and no reason for dealer not to give customer the best deal, they should be ONLY intermediary when it comes to finance and they should make their money from car sale, not from kickbacks. Also you need to realise that buyer in such arrangements often has no choice e.g. workplace scheme won't let you to choose where you get car, so it does not matter if you like the rate or not, that is your only option... and you being shafted by like 2% because lender an dealer has this secret kickback arrangement between them. I just can't see how you see no issue here... you should pay 5%, but you say 9% and then dealer and lender shares the the margin by which they ripped you off. 

Also also... you imply that people have any knowledge in such dealings, but vast majority don't... and on one hand we can say they are stupid, but on other hand there is no way to have that knowledge unless you are car dealer yourself, people let's say on average buy car once in 5 years, 100 factors contribute to the purchase decision, price and interest on lease is just one out of 100 factors in that decision... and even then the rates are opaque. There is realistically, no way average buyers would be able to have opinion on this, and this means that to get such knowledge they should go to say 10 different dealers, negotiate same deal, on same car and then compare the rate offered by all 10 dealers to choose one that has lowest rate?! This is just not practical... also maybe dealer that offers best rate has car in the colour you don't like and without sunroof which you want. Again - finance rate is just not the most important thing making purchase decision, but one would assume that when dealer says "this is the best rate we can offer" it is actually the BEST rate. And I don't want to expand too much into legal rabbit hole, but legally speaking all deals are done on the basis of "goodwill" and if it is proven that one party made a deal not in "goodwill", then that deal is illegitimate. There is NO WAY you can say deal was done in good will, when dealer obviously scammed you by 2%, they could have offered finance for 5%, but because of conflict of interest they offered the higher rate from company where they get kickback. And this is what TRF and Consumer Duty is about, and lenders are regulated, they have to make sure they act in the interest of consumer (by law). 

It has nothing really to do with BEV sales, they are failing and will fail because of very simple and inherent reason - BEVs do not work for 80%+ of the drivers and for ~20% for whom they work already have them. In short BEV market reached the point of saturation. Until something changes e.g. there is new regulation where allowing chargers at home are mandatory, number of public chargers increases like 10 times, or battery charging time decreases 10 times, this not going to change, you can provide best possible financing option people still can't drive BEV if they have nowhere to charge it. 

Finally, going back to your initial assessment i.e. that it will further hurt the sales of BEVs, I don't believe that is true, it probably helps with financing costs on the buyer side, basically financing should become more transparent and therefore overall cheaper, so I can't see how this ruling would make it any worse for BEVs? 

I know what you are talking about. i know the rules you refer to. As I say I do not give a hoot. It is only my opinion ,you are right, but I do think nanny rules that detract from people taking personal responsibility for their decisions is hardly a motivator for them to improve. Much more likely they end up once again in a big pool of chancers looking for a payout. The bottomline is lenders will adapt and that will end up as usual with the customer base. That isn't going to help promote car sales volumes ,but if you want nanny rules then that's the additional cost going forward. To be frank regarding your summary it doesn't appear to me that you understand commerce if you think that will be the outcome. Regulation costs don't overall lead to lower consumer costs and you don't have to look further than the energy Industry to understand that.

[Linas.P]

26 minutes ago, Boomer54 said:

I know what you are talking about. i know the rules you refer to. As I say I do not give a hoot. It is only my opinion ,you are right, but I do think nanny rules that detract from people taking personal responsibility for their decisions is hardly a motivator for them to improve. Much more likely they end up once again in a big pool of chancers looking for a payout. The bottomline is lenders will adapt and that will end up as usual with the customer base. That isn't going to help promote car sales volumes ,but if you want nanny rules then that's the additional cost going forward. To be frank regarding your summary it doesn't appear to me that you understand commerce if you think that will be the outcome. Regulation costs don't overall lead to lower consumer costs and you don't have to look further than the energy Industry to understand that.

Yeah, I don't think we will agree on this - there is NO personal responsibility in case where somebody is trying to mislead you or scam you. Example of personal responsibility would be - "should I buy cheaper car that I can afford, or should I buy expensive car I cannot afford and put myself into unnecessary debt". That somebody literally lies to you when you making decision and hides relevant information is not "personal responsibility", if you are expert and you can "see trough" the lies, then well done, pat yourself on the back. But if you not expert and you can't see it, then it does not mean you are somehow "irresponsible". Again we are talking not about daily transactions where you can "shop around", we are talking about once in 5 year decision, that perhaps happens like 6-8 times in lifetime, also I would point out that you shopping around on 100s of different criteria when you buying the car, maybe it is warranty deal, maybe colour, maybe other options, so comparison between two deals is not like for like.

It could be debated whenever regulation helps, or whenever as you say "lenders will find other ways", perhaps I also don't agree with all the rules by the letter, but I certainly agree with them in the spirit. And that spirit is - more transparency and more competition. Lack of transparency and lack of competition is bad for everyone, except those who like shady dealings. It is automatically bad incentive, instead of looking on how to cut costs to compete, one has incentive to do kickbacks, bribes, some sort of corrupt methods that could be hidden in the layers of intermediaries, creating conflicts of interest etc. These things are ALL inherently bad for everyone, the only thing they lead to is short term gain for cut-throat few, but long term damage for entire industry, lack of trust, cost for consumers, reduced sales for intermediaries. Also I point back to my example above - there is no valid reason in this transaction for such commission to exist, if the transaction is made in "good faith"... and if it is not made in "good faith", then what we are talking about? It is basically a crime. How is it different from a scam? 

Can you give me an example of how one would even find out and avoid such trap?