In a recent opinion article in the Financial Times, journalist John Gapper explores the potentially ruinous consequences of the UK auto finance industry's misselling scandal.
Earlier this year, the UK Financial Conduct Authority (FCA) launched a probe into auto lenders' use of "discretionary commissions," which incentivized finance brokers and dealers to raise interest rates on auto loans. The practice was commonplace in the industry until it was banned by the FCA in 2021.
Last month, the situation became even more dire for lenders when the UK Court of Appeal ruled that dealers have a fiduciary duty to offer the best possible financing terms to customers. Manipulating customers and burying excess interest charges in small print violates this duty, the Court decided. As aggrieved customers file an avalanche of claims, and lawyers see the opportunity for class action, lenders may face billions in potential restitution.
"It is an unholy mess from which neither banks nor dealers and brokers emerge well," Gapper writes. "Nor does the FCA, given that even lenders that have obeyed its rules since 2021 (and did so before that) could still be liable to pay compensation. If you can follow a regulator's code of conduct but remain exposed to mis-selling claims, running a consumer credit business is hazardous."
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