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Santander joins a growing list of UK finance firms preparing to pay drivers hidden car finance fees. Maximum transparency is desirable.
Therefore, the Court of Appeal’s decision that hidden commissions were unlawful makes sense.
I became aware of the problem while shopping for a second hand engine with one of my sons. Thinking cash was king, a discount was requested.
Instead, the merchant said it was more profitable to offer a loan because he could charge a hidden fee.
Payments: Moody’s believes potential cost of alleged car finance scam could reach staggering £30bn
Most of us use services where the commission is not automatically disclosed. Travel agencies are still widely used to book more complex overseas trips.
It is axiomatic that they would not be in business if it were not for the rates of airlines, hotels and rental car providers.
Much of the insurance purchased through brokers, who bid for underwriting, is rewarded with commissions.
You don’t have to be a financial genius to realize that the car dealer has something to lose.
Car salespeople are in a particularly difficult position because, like real estate agents, who compete on commission structures, there is no universal trust.
The potential cost of the alleged auto finance scam is rising. Moody’s estimates it could reach a staggering £30 billion in what would be a huge transfer of resources from banking to consumers.
It would reach levels of compensation not seen since the £50bn payment protection insurance (PPI) scandal.
Car finance outlays are already causing enormous stress. Investment bank Close Brothers struggles under a mountain of compensation. Santander in the UK has set aside £265 million and Lloyds Banking Group £450 million.
If the Supreme Court confirms the ruling, there will be no end to the damage that could be caused to parts of the financial system. In commerce it used to be the case that the guiding rule was caveat emptor: buyer beware.
It’s always helpful for the buyer to have the full picture, but there are countless examples where the fine print is ignored, such as the usurious APR interest rate on credit card payments that go over the limit.
In some respects, Britain, by going to court to challenge big business, is following the demanding culture of the United States, which is eating away at the reputation and finances of talc maker Johnson & Johnson.
Health may be different, but there is a danger of the compensation culture going too far. No one will have much sympathy for the car dealers or financial groups at the center of the motor finance scandal.
However, one cannot help but think that imposing huge payments on banks is detrimental to the general public interest.
It deprives banks of capital and liquidity. It will reduce credit capacity and put sand in the wheels of an already overstretched and overregulated economy.
Price pain
Keir Starmer’s stuttering government cannot be blamed for a sharper-than-expected rise in consumer price inflation to 2.3 per cent.
The 10 percent increase in the maximum energy price is largely responsible. However, Labor policies will surely mean that inflation and interest rates will remain higher for longer than necessary if consumers and businesses are to be convinced to take on debt.
Inflation-busting public sector pay deals, a costly rise in National Insurance and rising minimum wages threaten the price outlook.
An expected further cut in the bank rate in December from the current 4.75 per cent now appears unlikely.
Equally damaging has been the market’s overreaction to the Rachel Reeves tax deal, which has caused bond rates to rise and, in turn, the cost of fixed-rate mortgages.
It is not a pretty image.
fast flow
A shake-up is underway at Comcast, owner of British creative champion Sky.
In the United States, cable operations such as CNBC, E!, Oxygen and USA Network are being spun off to shareholders with considerable debt.
Fast-growing streaming and entertainment companies including Peacock, Universal Studios and its theme parks, along with NBC and its basketball broadcast rights, will be part of the new NBCUniversal empire.
Sky appears confident it will not be affected despite being a cable subscription company. We’ll see.
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