Market failure?

Market failure or a bonanza for the lawyers?

I came across the piece in the FT at reference 1 this afternoon, all about how the Court of Appeal has ruled in favour of the consumer in three cases up from the County Court. All concerning failure to properly disclose the commission payable on car purchase loans bought through intermediaries like brokers and car dealers - these last being the people selling the car in question - who thus get paid twice, once for the car and again for arranging the necessary loan to pay for it. I have not yet been able to find out when the three loans concerned were made.

It seems that this could have a fairly drastic effect on the car loan business, quite possibly on the consumer goods loans business more generally. Quite possibly opening the door to lots of claims for redress. Close Brothers - one of the companies who do a lot of motor finance - not happy at all, and nor is their share price (above). Much destruction of value. See reference 4 (below).

More background is to be found at reference 2, but I have not attempted to burrow down to the ruling itself - which may not yet be available online.

My first thought was that if you didn't like what your car dealer was offering in the way of a loan you could always go elsewhere. But the Financial Conduct Authority clearly thought otherwise, that car dealers and others were taking unfair or undue advantage of the consumers' weak position and published new rules in 2020, to be found at reference 3. Presumably these rules now have legal standing, that you break them at peril of being taken to law.

My second thought was that why don't market forces sort this out. If dealers are being greedy, why are other intermediaries not stepping forward?

But I suppose, as a leftie, I ought to side with the much put-upon consumers.

Maybe a fact finding mission to China is indicated. Maybe they have some better way of dealing with all this. Or maybe India or Brazil. Lots of cars in all these places.

PS 1: I couldn't get rid of the black splodge on the snap above. A quirk of Microsoft's Snipping Tool?

PS 2: just received an email in German from Edmondo at reference 5. A group of three restaurants in Germany of which I have never previously heard. In fact, I haven't heard of very many restaurants in Germany at all, with my only knowledge of same being a short (work) visit to Berlin maybe twenty years ago. If the snap above is anything to go by, rather lush establishments. Makes Circolo Popolare of Rathbone place look staid indeed. How on earth did Edmondo get my email address?

References

Reference 1: Court of Appeal sides with UK consumers over ‘secret’ car loan commissions: Close Brothers shares plummet after landmark ruling that puts sector at risk of redress - Alistair Gray, Martin Arnold, Akila Quinio, Financial Times - 2024.

Reference 2: https://www.lawgazette.co.uk/news/coa-opens-way-to-claims-over-hidden-car-finance-commissions/5121348.article.

Reference 3a: Motor finance discretionary commission models and consumer credit commission disclosure – feedback on CP19/28 and final rules: Policy Statement  PS20/8 - Financial Conduct Authority - 2020. To be found at https://www.fca.org.uk/publication/policy/ps20-8.pdf.

Reference 3b: A whole lot more of their stuff is to be found at https://www.fca.org.uk/search-results?search_term=discretionary%20commission%20car%20finance. 

Reference 4a: https://www.closebrothers.com/. 

Reference 4b: https://otp.tools.investis.com/clients/uk/close_brothers/rns/regulatory-story.aspx?cid=61&newsid=1878722.

Reference 5: https://bigsquadra.com/en/.