Close Brothers writing new car finance again after court ruling

Close Brother Motor Finance has begun phased return to the writing of new UK motor finance business as other lenders turn to technology to disclose commissions.

Leasing companies and brokers have been assessing the impact of a Court of Appeal decision on commissions paid on vehicle finance deals.

Some paused quoting for business while they assessed the ruling’s implications, with others have introduced new measures to reflect the judgement.

In the landmark ruling, the Court of Appeal found in favour of the three consumers, who claimed they were mis-sold motor finance products by Close Brothers, Firstrand Bank and Motonovo. 

The court concluded it was unlawful for a broker, such as a car dealer, to receive a commission from a lender providing motor finance to a customer unless it was disclosed to the customer and they gave informed consent to the payment.

Following a temporary pause in underwriting new vehicle finance agreements, which was announced on the day of the ruling (October 25, 2024), Close Brothers (which is No42 in the FN50) resumed writing new business with selected partners on Saturday (November 2). 

This, it says is part of a phased approach which will see it switching on new business with all third-party partners.

Details about new processes have been communicated with partners where it has resumed writing new business.

Seán Kemple, CEO of motor UK and retail finance Ireland, said: “The Hopcraft Court of Appeal judgment led to a unique situation that meant unprecedented change was needed, almost immediately. 

“We took the difficult decision to pause lending for the right reasons, to keep our customers, partners and our business safe. 

“I want to say a special thank you to my colleagues for reacting so quickly to the new requirements for commission disclosure, working night and day to develop an effective solution very quickly.” 

He added: “The judgment has meant process changes across the industry, and I’m also very grateful to our partners for their support, patience and for getting to grips with new ways of working so quickly.”

Lenders upgrading tech to disclose commission in ‘timely manner’

According to iVendi, lenders are upgrading their use of technology to disclose commission to customers in a timely manner following the court’s decision.

The motor retail technology firm says general agreement has arisen that disclosure should happen at the point of “no detriment” – when a decision on choosing a motor finance product was being made – but that delivering accurate commission figures using existing systems was sometimes proving a challenge.

James Tew, iVendi’s CEO, said: “As everyone in motor retail knows, this has been a highly demanding few weeks following the court of appeal decision, with motor finance providers and intermediaries such as dealers working hard to meet the demands of the court of appeal decision.

“Initially, they did this in all kinds of ways – from quickly modifying their existing technology to inserting old-fashioned paper systems – but now they are looking for longer term solutions. 

“A consensus has emerged around the concept of ‘no detriment’ and this makes a lot of sense. However, for some lenders and their technology, there are challenges around being able to calculate commission accurately before the deal is made, especially where risk-based pricing and third-party APIs are in use.”

He explained that resolving this issue was essential before the newly required levels of customer transparency could be delivered.

“Ensuring transparency by disclosing actual commissions and their calculation mechanism, and obtaining explicit customer consent, is now paramount,” he said. 

“Using the lender finance agreement as a safety net, upfront disclosure serves as comprehensive evidence for all stakeholders involved in the motor finance process and covers potential legal scenarios. This is essential to safeguard not only consumers but also lenders, retailers, and individuals in motor finance roles at dealerships.”

Other issues were coming into play following the court of appeal decision, according to Tew, including the need to separate compliance from legal needs, and to compile substantiating evidence.

“Everyone involved in these processes needs to ensure that in meeting the new legal needs, they don’t lose sight of compliance with existing regulations,” he added. 

“This is especially important when it comes to evidencing everything that you do. Claims of adherence hold little value without substantiating evidence.”