It comes after banks, car manufacturers and dealers flew into a panic on Friday when Court of Appeal judges ruled that commission fees added to financing deals – a standard arrangement used for decades – were in fact unlawful.
Amid the uncertainty, several lenders have temporarily paused deal-making as lawyers prepare to launch potentially massive lawsuits against them. Deliveries have also been halted to prevent pre-agreed financing agreements coming into force.
Car dealers generally receive commissions from banks or other lenders when they act as middlemen to sell vehicles to customers using financing arrangements.
November cars sales figures this month will be in the krapper.
Could be a favorable time for the sort that has cash in hand, to beat a 20% tariff on imported cars, which would quickly be matched by a 20% jump in the price of US built cars?
Recall my washing machine example. A new Samsung front loader cost me $507, including tax and delivery in 2010. During the protectionist tariff on Korean washers in July 2021, a US built top load, 4.2 cuft Maytag (Samsung washers were not available) at Lowe’s was $719, on sale from $799. Now, after the Whirlpool profit enhancement tariff has expired a top load 4.5 cuft Maytag, at the same store, Lowe’s, is now on sale for $568, “marked down” from $799.
The Court of Appeals ruling threatens to upend this business model because it found that deals were illegal unless the level of commission had been fully disclosed.
Disclosure has been the general rule for all “fair financing” laws for decades now. If they properly disclosed it, there should be no issue. If they didn’t disclose it, well, that’s unfair financing and they ought to be penalized for ALL their unfair financing deals.
There used to be a “truth in advertising” law that you could not advertise something as “on sale”, unless it was full price at least half the time. That law seems to have been found to be an “infringement” of the corporate person’s free speech rights. A replacement window company in metro Detroit advertises it’s windows “half off”, all the time, 52 weeks/year.
And who takes the time to read and understand every word of every piece of paper a car dealer throws at you?
This is a different issue. You can never protect a consumer that refuses to read what they are agreeing to. The general rule is “adequate disclosure”. So if they bury it inside the interest rate, even if they say “up to 10% of your interest payment is remitted to the originator as a fee”, that may not be adequate. It’s possible that they have to say “£27 out of your £270 interest payment is remitted to the originator as a fee” to be considered adequate.
I have been out of the business for eight years, but for years before that worked as a finance manager in more than one dealership. I have never seen anything in writing or disclosed orally for that matter, that even hinted at the dealership participation in the interest rate profit. It was thoroughly disclosed by all lenders, and the participation cap was anywhere from 1 to 3 points on the contract. These lawsuits, should they materialize, will be gargantuan.
One point - although the thread title says “US Court of Appeals,” clicking through to the news article it appears that this is a decision from Britain. And it seems to be specific to British law.
Is there some reason why we would think a similar decision would follow here in the US? Although the main goals are similar, our financial consumer regulations would be different in the specifics…