Why not getting car finance compensation could be a blessing in disguise
Consumer reporter Tom Jervis thinks that the long-term repercussions of mass payouts could greatly outweigh the benefits of any potential finance scandal compensation
Time has passed since the Supreme Court’s ruling. The dust has settled, and I, for one, have abandoned my plans for a new games console and a weekend getaway, because my hopes for car finance compensation now lie mostly in tatters.
In that time, however, I – as well as many other voices across the industry – have concluded that while not being in line for a payout in the ongoing car finance scandal saga might be disappointing, the reduction in scope has ultimately been a good thing for all of us, consumers and businesses alike.
Now this might sound counterintuitive – why would consumers not getting the cash they feel they’re owed be the preferred outcome? But the truth is that the long-term repercussions of mass payouts may greatly outweigh the benefit motorists would get from a bit of extra cash in the post.
One of the biggest concerns for the car finance industry prior to the Supreme Court’s ruling was that redress on the scale that was expected – analysts warned of anything between £40-45 billion in payouts to almost anyone who has taken out motor finance in the two decades – could be nothing short of armageddon for the motor finance industry.
“Why’s that a bad thing?” I hear you ask. “Don’t those greedy lenders deserve what’s coming to them?”
Maybe. Maybe not. But regardless, the general consensus was that such a sizeable financial hit to the industry would consequently push up the cost of lending, thus increasing the price of car finance in the future, and potentially make it harder to secure a loan altogether.
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Given that nine out of 10 cars in the UK are bought on finance, disaster for the finance sector would inevitably have a very substantial negative impact on the UK car market as a whole, if the cost of financing increased. Any drop in new-car registrations would in turn diminish manufacturer profits, potentially forcing them to raise prices – not ideal when we’re already struggling to encourage buyers into more eco-friendly electric cars, which are only now beginning to get less expensive.
Financial ruin and the crippling of the automotive industry aside, there’s also the moral issue of assuming all motorists were completely naive and oblivious to commission payments being made to dealers. We motorists are (generally) more intelligent than we give ourselves credit for and would be doing ourselves a misservice if we didn’t at least secretly acknowledge that deep down we know that dealers do, of course, need to make a living and don’t entirely exist in our servitude.
Now, I must emphasise that we at Auto Express are very keen to see those who were wronged being appropriately redressed; excessive levels of commission, such as in one of the cases featured in the Supreme Court case, in which it accounted for 55 per cent of the cost of the consumer’s finance deal, are frankly obscene and should be called out.
Discretionary Commission Arrangements are also unfair and we’re glad the Financial Conduct Authority (FCA) has announced a consultation on a potential redress scheme. However, the Finance and Leasing Association has since argued that such a scheme goes too far, questioning whether something covering finance agreements going back as far as 2007 can be fair, given that firms weren’t obliged to hold all of the appropriate data.
This feels like nothing more than a blatant attempt to narrow the scope of payouts even further; DCAs only account for roughly 40 per cent of finance deals between 2007 and 2021 anyway, with the total industry bill having more than halved since the Court’s ruling to a maximum of £18 billion. Thus, we feel the FCA should continue with its plans, ignoring interference from the industry and Government to ensure those affected get what they deserve.
So, in short: the Supreme Court’s ruling may well be a blessing in disguise, with consumers possibly missing out on compensation for something they never would have known to even feel aggrieved about, had it not come to light as part of the DCA fallout, at the same time as protecting the system most consumers rely on to fund their next car purchase. So while some will still be eligible for compensation, I for one will have no choice but to launch a GoFundMe campaign, ensuring that Nintendo Switch 2 will be mine in no time…
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