In recent weeks, the ongoing inquiry into automotive finance providers has dominated the headlines.
Car Dealer reported last month that the Financial Conduct Authority (FCA) is investigating cases of finance houses not paying out compensation to customers over now-banned ‘discretionary commission arrangements’.
The watchdog is using its powers under S166 of the Financial Services and Markets Act 2000 to identify cases of potential wrongdoing by motor finance firms.
The news has got many in the industry feeling twitchy about who will be left to pay out what and the topic was one of the subjects up for debate on this week’s episode of the Car Dealer Podcast, sponsored by JATO.
Our latest guest was Ian Cooper, head of sales operations at cutting edge dealer software developer, DealerKit.
He joined regular hosts James Baggott and Jon Raey on the show, as the trio discussed just what the unfolding enquiry could mean for the automotive industry as a whole.
Setting out the debate, Raey said: ‘Lloyds Banking Group have put aside £450m to deal with the FCA investigation, where it to conclude in such a way that they need to hand some money back.
‘That sounds like a huge amount of money – it is – however if you compare it to their £7.5bn profit, it’s something like 6.5% of their profit to deal with this.
‘It’s not small potatoes but it’s not exactly going to sink Lloyds Banking Group, I would suggest.
‘Their bosses also don’t expect losses to reach the same levels as the PPI scandal, they’ve said, which is slightly reassuring because everything at the minute is sounding a little bit scary.
‘Possibly that’s because we’ve got the Gap insurance issue, which is completely separate, going on at the same time but it’s just finance is sounding even more scary than usual at the minute.’
In response to the story, Baggott said he had noticed a ‘jumpiness’ from the banks who could be left facing hefty bills.
He added: ‘I was reading in the Times this morning, the same story that we reported on and they just had a fact in there that I thought was really interesting.
‘At the time of the the PPI scandal came out, Lloyds set aside £3.2bn to deal with that PPI compensation. Their eventual final bill for PPI? £22bn.
‘There is a bit of a disparity here between how much they putting aside at the moment and what the eventual bill could be.
‘Just to give you an example of just how jumpy the banks are about this – we wrote a story last week about Close Brothers putting aside some money and in that story we said that the FCA were “investigating” the commissions and that it was an “investigation.
‘I very rapidly then received an email from their PR people saying “this is definitely not an investigation. It is an inquiry.”
‘I was just left thinking “What on earth is the difference between and investigation and an inquiry?”
‘It just shows you quite how jumpy they are about this though. If they’re worried about the words we’re using in a story about Car Dealer Magazine about it, then they really are concerned.
‘There is a lot of concern about this and from the dealers’ side, I think dealers want to know whether they are going to be liable for any of this and at the moment nobody knows.
‘That is the question that everybody keeps asking, we know it keeps coming up time and time again. Dealers want to know if they are going to have to fund any of this compensation if it happens. I don’t know. I can’t answer that.’
The motor finance scandal so far…
Pressed for his own opinion on what the scandal could mean for dealers, guest Cooper said the future could look ‘scary’ for retailers.
He said: ‘It a bit scary isn’t it? Car Dealer seem to be of interest at the moment and it’s a shame it just seems to be one thing after another.
‘If it’s not the Gap insurance it’s the FCA bits on the commissions.
‘For me, it seems that if you have changed the laws and the regulations, then from that point on then regulate it but it seems like they’re going back to before that was passed when dealers were exposed to that risk.
‘I think it’s just one thing after another and it could be huge. I think dealers are worried.
‘We speak to dealers every day and there doesn’t seem to be that much rippling at the moment – a few have had a few enquiries – but it does seem to be more with the lenders.
‘However, they’re going to want to push and claim some of that back from the dealers but how that would look from a payment profile point of view, I don’t know. It’s very scary.’
The Car Dealer Podcast, sponsored by JATO, sees an industry guest join our hosts to discuss the motor trade’s biggest headlines of every week.
Among the other topics up for discussion in the latest episode were the cars which took longest to sell in 2023, the future of the Plug-in Car Grant and the latest on the ULEZ scrappage scheme.
You can listen to all episodes of the Car Dealer Podcast on Spotify, or wherever you get your podcasts.