Call for lenders and brokers to unite on commission disclosure

Stephen Bassett takes a first look at some of the ramifications of the Court of Appeal’s recent, and unexpected, ruling, and considers how the industry might respond.

There is no doubt that the judgment regarding the disclosure of commission on motor finance arrangements has created confusion and complexity. It’s also thrown up a quandary for both lenders and brokers regarding what and when the customer needs to know about any payments.

Following the judgment, disclosing commission (or as it could more correctly be described ‘gross fee income’) to all customers in a timely manner, becomes part of any broker/intermediaries role. 

But it is the lenders who have been first to act, given they have responsibility for the validity of any customer agreement for the whole lifetime of all such agreements.

Some initially decided abruptly to pause or cease lending, compounding the early problems, while to their credit others worked hard to find ways to keep funding available and keep the finance wheels turning.

All are now looking for ways to bring order out of the chaos, and the result is a myriad of differing formats of commission disclosure forms for broker/intermediaries to take on board. While some are suitably simple and easy for customers to understand, others seek to cover every eventuality, and the likelihood is that simple competition will increasingly mean business goes to those lenders whose document does not present an unnecessary obstruction to completing a deal.

Unified format

The whole sector would clearly be better off in now getting ahead of that situation by working together to design a suitable set of agreed and unified formats.

In the medium to longer term, one solution is for the whole industry (as happens in some other financial sectors) to work to an earlier ‘unified’ set of customer ‘onboarding’ documents, in which customers sort themselves into or out of the ‘sophisticated’ bracket the Court has created, whilst also signing off on the nature of the broker/intermediaries remuneration method. 

Critically, if this approach is adopted, then there would eventually be no need for brokers to actually declare the quantum of their gross fee income to sophisticated customers, since they will already have agreed the methodology (or instead, a direct fee) in the onboarding processand willsimply looking to complete the deal within their desired timescale. 

And, depending on the customer’s degree of urgency, as long as such an onboarding document was enacted as much prior as possible to the loan document being signed, it would be viewed as “timely”.

Competition will define the winners and losers in the new world we now all face, so it would help the sector as a whole to get ahead with an agreed approach. This is particularly important given the uncertainty about the wider implications of the ruling and the prospect of a possibleSupreme Court challenge.

The Guild of Business Financial Professionals stand ready to support this collaborative approach and to work together with all interested parties to produce the best product – and outcome – for customers.

Stephen Bassett is Chairperson for The Guild of Business Finance Professionals.

Asset Finance Connect’s conference in London on 26^th November is focused on the key topics that now need to be considered in light of the Court of Appeal ruling. There will be sessions involving both Stephen Haddrill, director general of the FLA, and Jim Higginbotham, CEO of the NACFB, exploring how the sector can best respond.