Santander joins the lengthening list of UK financial firms preparing for payouts to motorists for hidden car finance commissions. Maximum transparency is desirable.
So the Court of Appeal’s ruling that hiding commissions was unlawful makes sense.
I became aware of the wrinkle while buying a second-hand motor with one of my sons. Thinking that cash was king, a discount was requested.
Instead, the dealer said it was more profitable to offer a loan because he could collect a hidden commission.
Payouts: Moody’s believes the potential cost of the alleged car finance scam could reach an astonishing £30bn
Most of us use services where the commission is not automatically disclosed. Travel agents are still widely used to book more complex overseas trips.
It is axiomatic that they would not be in business were it not for fees from airlines, hotels and hire car providers.
Much of the insurance bought through brokers, who put underwriting out to tender, is rewarded by commission.
One doesn’t have to be a financial whizz to recognise there is skin in the game for the car dealer.
Motor sellers are in a particularly difficult position as, like estate agents, which do compete on commission structures, there is not a universal trust.
The potential cost of the alleged car finance scam is escalating. Moody’s reckons it could reach an astonishing £30bn in what would be a huge transfer of resources from banking to the consumer.
It would hit compensation levels not seen since the £50billion payment protection insurance (PPI) scandal.
Car finance payouts already are causing huge stress. Investment bank Close Brothers is struggling under a compensation mountain. Santander in the UK has set aside £265million and Lloyds Banking Group £450million.
If the Supreme Court upholds the ruling there is no end to the damage which could be caused to parts of the financial system. It used to be the case in commerce that the guiding rule was caveat emptor – buyer beware.
It is always helpful if the buyer has the full picture but there are countless examples of the small print, such as the usurious APR interest rate on over-the-limit credit card payments, being ignored.
In some respects Britain, in going to the courts to challenge big business, is following the plaintiff culture in the US, which is eating away at the reputation and finances of talc maker Johnson & Johnson.
Health may be different but there is danger of the compensation culture overreach. No one will have much sympathy for car dealers or the finance groups at the heart of the motor finance scandal.
Yet one cannot but think that imposing huge payouts on the banks is detrimental to the broader public interest.
It deprives banks of capital and liquidity. it will reduce lending capacity and put sand in the wheels of an already overburdened and over-regulated economy.
Price pain
Keir Starmer’s stuttering government cannot be blamed for a sharper-than-projected rise in consumer price inflation to 2.3 per cent.
The 10 per cent rise in the energy price cap largely is responsible. Labour policies, however, are certain to mean inflation and interest rates will remain higher for longer than necessary if the consumer and businesses are to be coaxed into borrowing.
Inflation-busting public sector pay deals, the costly National Insurance rise and the boost to the minimum wage all threaten the prices picture.
A hoped-for further cut in bank rate in December from the current 4.75 per cent now looks unlikely.
As damaging, has been market over-reaction to Rachel Reeves’ fiscal settlement which has caused bond rates and, in turn, the cost of fixed rate mortgages to rise.
Not a pretty picture.
Fast stream
A reshape of Comcast, owner of British creative champion Sky, is under way.
In the US, cable operations including CNBC, E!, Oxygen and USA Network are being spun off to shareholders with a hefty debt pile.
Fast-growing streaming and entertainment enterprises including Peacock, Universal Studios and its theme parks together with NBC and its basketball broadcast rights will be part of fresher empire NBCUniversal.
Sky appears confident that it will be unaffected in spite of being a cable, subscription enterprise. We’ll see.
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