Summary
The Asset Finance Connect UK Conference in November 2024 convened industry leaders to discuss the commercial implications of recent legal decisions on consumer auto finance.
The interactive seminar explored the ripple effects of the Court of Appeal’s October 25th ruling on commission disclosure, industry practices, and customer experience. While the legal nuances remain under scrutiny, the panel focused on practical and commercial responses within the auto finance sector.
Since the AFC Autumn 2024 Conference, it has been confirmed that the Supreme Court has agreed to hear an appeal on 1st April 2025.
The Court of Appeal ruling: immediate commercial fallout
Wayne Gibbard, partner at Shoosmiths, outlined the ruling’s impact on auto lenders and brokers. The court’s characterisation of “secret commissions” as unlawful prompted varying reactions across the industry. Some lenders paused operations to reevaluate their processes, while others continued under revised frameworks, causing confusion for brokers navigating inconsistent practices.
The immediate effect was disruption to customers awaiting vehicle deliveries, as dealers and lenders scrambled to adapt. Buying a car is often an emotional milestone, and this regulatory upheaval sowed frustration and uncertainty among consumers.
Commission disclosure: a transparency challenge
Transparency emerged as a central theme in the discussion, with panellists emphasising its importance in building trust and improving the customer journey.
Customer perceptions
Research from Auto Trader highlighted that while commission disclosure does not significantly affect purchasing decisions, it reinforces trust and understanding. Consumers value clarity in fees, financial terms, and the roles of dealers and lenders. Yet, the industry faces a gap in educating customers on these roles, with many assuming the dealership itself provides the financing.
Complexity of disclosure
Panellists acknowledged the disconnect between regulatory frameworks, common law expectations, and existing practices. Lenders, brokers, and dealers often provide conflicting or overlapping disclosures, leaving customers confused.
Sytner Group’s Mike Pierce, reflecting on customer feedback, advocated for standardised, concise disclosure documents. He noted, “If [disclosure statements] don’t complement each other, they create confusion in the eyes of the customer.”
The challenge of complexity in consumer credit regulations
Gibbard noted that a contract by law should include all relevant information of the agreement, and the intermediary/lender must ensure that the customer understands and acknowledges the key terms. However, in the Johnson vs Firstrand Bank case, the Court of Appeal ruled that the reference to commission was buried within the agreement’s terms and was not adequately brought to the customer’s attention. Gibbard questioned what exactly needs to be highlighted for customers, noting that it varies depending on individual circumstances.
When viewed collectively, Gibbard pointed out that current regulatory requirements create “conflicts and tensions”. If the industry had the opportunity to start afresh, the approach would likely be very different. However, the complexity of regulations—stemming from the 1974 Consumer Credit Act, 83 separate regulations, the Consumer Credit Directive with EU elements, and FCA principles—has resulted in a layered, intricate system that is difficult to navigate. The challenge of simplifying these terms is significant, particularly when trying to explain them in a way that an 8- to 14-year-old could understand (with most adults have the reading ability of a 14 year old).
Gibbard observed that other industries have undergone a “reset,” but in the auto finance sector, the regulatory framework has evolved in a way that continuously adds to the complexity, making reform increasingly difficult.
These regulatory inconsistencies and complexities were criticised by the panel, with Gibbard calling for Treasury intervention to harmonise fragmented legal and regulatory frameworks: “We can’t have different parallels of law, regulation and common law all looking at the same problem and coming up with different conclusions.”
Evolving business models
The panel explored the future of commission structures and alternative revenue models.
Commission transparency and impact on margins
While customers generally accept disclosed commissions, the ruling raised questions about “fair” commission levels. Graham Wheeler criticised cases involving excessive commissions, such as the 26% commission highlighted in the Johnson case, as damaging to the industry’s reputation. The hope is that clearer thresholds for acceptable commissions will emerge, potentially driving down inflated margins.
Alternative revenue approaches
Panellists discussed models like upfront or administrative fees, which could mitigate commission-related issues. However, these fees must be transparent and included in advertised car prices to align with customer expectations.
Technological innovations
During the session, Amar Rana introduced a digital solution—FastCheck—that embeds commission disclosures within the car finance customer journey. This tool aims to ensure customers receive relevant information at critical stages while maintaining a digital audit trail to meet regulatory requirements.
New tools such as Fastcheck are important in enabling dealer staff to navigate the newly introduced fiduciary duty requirements in a compliant manner.
Conclusion: transparency as a non-negotiable
The panel unanimously agreed that transparency in commission disclosure and lender-broker practices is here to stay. While the Supreme Court’s future ruling may influence specifics, the industry must embrace transparency as a guiding principle.
Wayne Gibbard summed it up aptly: “The more we go back into dark corners and try to hide things, the worse we make the situation. As an industry, we have to step forward into transparency and tell customers what’s going on.”
By aligning practices, simplifying processes, and prioritising customer understanding, the auto finance industry can navigate these challenges and rebuild trust.
