Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Hey it's Maren here.
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Speaker 1: Talks Your Money, the personal finance edision of Meron Talks Money.
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Speaker 1: for making the most of your money. I'm Merrin su
Speaker 1: Stetweb and with me this week senior reporter Harry Wilson
Speaker 1: and reporter Eleanor Thornberg, replacing John Steppeck, who was away
Speaker 1: this week outrageously because I'd love to talk to him
Speaker 1: about this particular subject. We are talking this week about
Speaker 1: car commission payments. British car dealers very often don't just
Speaker 1: sell you cars, they arrange the loans that allow you
Speaker 1: to buy them. Historically, those loans have looked relatively competitive
Speaker 1: if you've gone in to buy a car, you've chosen
Speaker 1: your car, you've sat down with the dealer, he's offered
Speaker 1: you a loan, you've assumed it's a fixed price, you've
Speaker 1: taken it. What we're now learning, thanks to an FCO
Speaker 1: investigation which started in January, is that those prices were
Speaker 1: not fixed. They included hidden commissions about forty percent of
Speaker 1: the time, commissions that use the buyer knew nothing about,
Speaker 1: and it turns out that that is not legal. Carry
Speaker 1: tell us what's happened here.
Speaker 2: What you've got is a change in the UK car
Speaker 2: buying market over the last couple of decades, and out
Speaker 2: of recently. Essentially most people buy a car that're taking
Speaker 2: out some kind of financing. So the larger part of
Speaker 2: car for finance purchases these days are going to be
Speaker 2: with a thing called a personal contract.
Speaker 1: Plan, the ones right where you pay you pay a
Speaker 1: monthly fee or a monthly payment and then at the
Speaker 1: end there's a balloon payment and you can choose or
Speaker 1: not choose to pay that balloon payment and take full
Speaker 1: ownership of the car.
Speaker 2: Correct, So what you're doing with a PCP contract is
Speaker 2: paying the depreciation on the car effectively. So what you've
Speaker 2: got as agreement between you and the dealer to essentially
Speaker 2: finance the value of the car as it starts and
Speaker 2: what they reckon it will be at the end of it,
Speaker 2: and that then chops up into thirty six or monthly
Speaker 2: payments normally, So pretty uncontroversial. That's that's the way most
Speaker 2: people have been buying cars now for more probably more
Speaker 2: than a decade. And it's also the way that most
Speaker 2: car manufacturers car dealers make a lot of their money too,
Speaker 2: is they're not essentially selling your car, they're selling your
Speaker 2: financing product when you go in there.
Speaker 1: So what's a difference between that and higher purchase HP,
Speaker 1: because that's included as well, right, So.
Speaker 2: Higher purchase is more expensive in terms of your monthly payments,
Speaker 2: so you're a difference maybe several hundred pounds in what
Speaker 2: you have to page month. PCP is cheaper, but at
Speaker 2: the end of it, you will have a larger payment
Speaker 2: to buy the vehicle at the end, So high purchase
Speaker 2: is going to be a formality. PCP is probably going
Speaker 2: to be something in order of several thousand pounds to
Speaker 2: actually own the car at the end. And the reality
Speaker 2: is most people at the end of a PCP contract,
Speaker 2: probably won't actually buy the car. They'll roll over the deal.
Speaker 2: The car dealer will say that they've got something like
Speaker 2: equity in their car, so they'll then take out to
Speaker 2: buy a new car, take out a new PCP plan,
Speaker 2: and the sort of the cycle continue.
Speaker 1: Like maybe a mortgage been autor just paying for that duty.
Speaker 1: So you know, from your point of view as a customer,
Speaker 1: you see an interest rate, maybe it's four percent, five percent,
Speaker 1: looks kind of fine, you pay you maybe, I mean,
Speaker 1: this is this is in their years running up to
Speaker 1: twenty twenty one, is what we're talking about. These kind
Speaker 1: of deals were made illegal in twenty twenty one. So
Speaker 1: before that, you got off of a prize, you could
Speaker 1: afford the price, you paid the price, you've got the car.
Speaker 1: Where's the problem?
Speaker 3: You just essentially didn't know that some of the money,
Speaker 3: some of the payments that you were making were actually
Speaker 3: to the lenders benefit and not necessarily for the car
Speaker 3: that you're paying for. So the commissions are said actually
Speaker 3: created perverse incentives all the lenders themselves, which you weren't
Speaker 3: aware of.
Speaker 1: Yeah, the thing here is that the interest rate is
Speaker 1: effectively discretionary. Yeah, so it's called it a DCA discretion
Speaker 1: discretionary commission payment. So you could conceivably, if this car
Speaker 1: salesman wasn't in the way of your deal, you could
Speaker 1: possibly have got a rate of say two and a
Speaker 1: half percent or three percent. But because he's in the way, Yeah,
Speaker 1: adding his bit on told up, maybe you've paid five
Speaker 1: percent or six percent. And that's the problem. You didn't
Speaker 1: know what it was exactly.
Speaker 2: Okay.
Speaker 1: Now, when the FCA originally started to look at this,
Speaker 1: their main concern was exactly that was these commission payments,
Speaker 1: was the idea that there was a discretionary commission in
Speaker 1: there and people didn't know about it. But now the
Speaker 1: most recent court case, almost recent ruling has widened this
Speaker 1: out right to any kind of commission payment that you
Speaker 1: didn't know about. So there are other types of commission
Speaker 1: payment in here as well.
Speaker 3: Can you tell us, yes, a non discretionary which is
Speaker 3: kind of where the officer where the customer is told
Speaker 3: that there is going to be commissioned, or the payments
Speaker 3: that they make. But yeah, as you say, the court
Speaker 3: case kind of up so kind of any commission that
Speaker 3: is paid has now been made like unlawful behavior.
Speaker 1: So flat fee is paid by finance companies to the
Speaker 1: does bring all franks.
Speaker 3: Yeah, so if you're Barclays and you pay the commission
Speaker 3: to the lender, you are inherently involved because you've played
Speaker 3: a part in paying that commission, which is now illegal.
Speaker 1: Okay, So we'll come on to this being horrible for
Speaker 1: the banks because they must be signally going, oh lord,
Speaker 1: here we go again, because I remember the PPI scandal
Speaker 1: and the billions and billions they had to pay out then.
Speaker 1: But for a consumer now here you are, You've got
Speaker 1: your car, your car might even be paid off at
Speaker 1: this point, and suddenly somebody's saying to you, do you
Speaker 1: know what? You could get a pile of cash out
Speaker 1: of this. How do you go about doing that?
Speaker 3: Well, you'd have to make a claim by the Financial
Speaker 3: Oddmusman Service, And the kind of actions of the FAA
Speaker 3: are certainly encouraging off people to do that. As you say,
Speaker 3: they've opened up to not just kind of any kind
Speaker 3: of form of commission. So it actually be quite straightforward.
Speaker 3: I mean, it just depends on how many people decide
Speaker 3: to do that, I suppose, but it is quite a
Speaker 3: straightforward procedure. You just make a complaint and see how
Speaker 3: much money you're entitled to. I think it depends on
Speaker 3: where exactly you start to the car finance.
Speaker 1: Yeah, I'm the first thing to do is to find
Speaker 1: out whether you've actually had this discretionary commission in your deal,
Speaker 1: because obviously, because you won't talked about it exactly, you
Speaker 1: don't know if you've got it or not. So the
Speaker 1: first thing, presumably is to go to your car finance
Speaker 1: company and say is this in there? So you need
Speaker 1: to write a letter to them, and there are template
Speaker 1: letters you can use. Money Saving Expert has one, which
Speaker 1: has one, you can find others on the internet. So
Speaker 1: the first thing to do, I would guess, is to
Speaker 1: use it a template to find out whether you actually
Speaker 1: might be owed any money or not. And I think
Speaker 1: it's about forty percent of car finance deals did have
Speaker 1: this discretionary commission in it. So that's the first step, right, yes,
Speaker 1: And then then you.
Speaker 3: Wait, yes, wait and see with fingers crossed.
Speaker 1: And we know the timeframe.
Speaker 3: It's not clear as you say, it's a straightforward procedure,
Speaker 3: so it could suddenly amass all at once and that
Speaker 3: might clog things up. But if you know the banks
Speaker 3: on the lenders are expecting it, it may well not
Speaker 3: take long at all.
Speaker 1: Yeah, I'm I think that the period in which the
Speaker 1: banks or finances can respond has been taken out to
Speaker 1: the end of the next year. Yes, a lot of
Speaker 1: widens the window even more exactly, so you've got a
Speaker 1: long time to do it. But on the other hand,
Speaker 1: you might as well get started because we don't know
Speaker 1: how this this stuff is going to move. And I
Speaker 1: think the FCAS there are already twenty thousand complaints or
Speaker 1: so open, so there's a lot more complaints to come.
Speaker 1: And if there is this huge volume and they decided
Speaker 1: to go with both discretionary and a discretional interest in
Speaker 1: other types of commission, you're talking potentially hundreds and hundreds
Speaker 1: of thousands of claims. So, you know, exciting times for consumers.
Speaker 1: I mean, Harry, you probably remember, as I do, the
Speaker 1: PPI payments and it came out to the fifty billion
Speaker 1: or some was a genuine boost to the consumer economy,
Speaker 1: and they said there's anything that Rachel Rice could do
Speaker 1: with right now would be a fifty billion booth from
Speaker 1: the banks into the consumer economy.
Speaker 2: Yeah, I mean, it's crazy when you think back. I
Speaker 2: think it was around about twenty ten twenty eleven, one
Speaker 2: of the big US investment banks came out with its
Speaker 2: worst case scenario for PPI and it said something in
Speaker 2: a reader of about three point twenty five three point
Speaker 2: five billion pounds of claims was the worst case, and
Speaker 2: this was seen as crazy at the time. And some
Speaker 2: months after that Lloyd's actually made a three point five
Speaker 2: billion pound provision, which again was seen as way over
Speaker 2: the top. It's never going to need all that money.
Speaker 2: What was they doing? Well, when Lloyd's got to about
Speaker 2: thirty billion, I think most people realized that the three
Speaker 2: point five was, if anything, a massive underrestment. So the
Speaker 2: question for the industry really at the moment is are
Speaker 2: we looking at something here that could balloon into a
Speaker 2: PPI site situation? Are the numbers at the moment actually
Speaker 2: relatively small fry compared to what potentially could be paid
Speaker 2: out here?
Speaker 1: So Ragiraries must be you know, licking her lips.
Speaker 2: Well, yes, I mean there is some quite serious academic
Speaker 2: money going from the banks.
Speaker 1: Yeah.
Speaker 2: Well, this thing is that it is genuinely stimulative because
Speaker 2: this is relatively small amounts of money, you know, a
Speaker 2: few thousand pounds here, and it tends to be money
Speaker 2: that people aren't going to put into a saving scout.
Speaker 2: It's money that gets immediately recycled into economy. You know,
Speaker 2: people buy a new TV or something like that. So
Speaker 2: there could be a short term sugar rush if there is,
Speaker 2: you know, if this does turn into a mini or
Speaker 2: even a major PPI type situation.
Speaker 1: But there was a suggestion from Moodius the other day
Speaker 1: there will come out of the thirty billion US so,
Speaker 1: as you said, isn't it billion? That really is real money.
Speaker 1: And of course last time a lot of the PPI
Speaker 1: money was recycled into cars. Do you remember that.
Speaker 2: Yeah, yeah, so look out life comes with so it's possible,
Speaker 2: you know, this money goes straight back into the pockets
Speaker 2: of the car companies through people buying new cars.
Speaker 1: That like PPI. When it's a sort of mass redress system, right,
Speaker 1: everyone gets there's a fairly standard payment system. It's really
Speaker 1: very efficient way to get money into the pockets of
Speaker 1: ordinary people. It's like another people's Q.
Speaker 2: Quite. The only thing I suppose banks would question would
Speaker 2: be to say, well that's all great, but then that
Speaker 2: puts our cost of capital. We are seen as increasingly uninvestable.
Speaker 2: Therefore we need to now pass that on in terms
Speaker 2: of higher costs across the board in terms of all
Speaker 2: our products. So yes, everyone sees a or at least
Speaker 2: those who bought these products will get the money. What
Speaker 2: you might see though, over the time, is a gradual
Speaker 2: increase in the costs of a range of financial products,
Speaker 2: which generally it won't be good for anyone. But you
Speaker 2: know that's a longer term problem, and in the here
Speaker 2: and now, you know a few thousand pounds would be
Speaker 2: quite nice to a lot of people.
Speaker 1: Definitely, do you have any sense at all of it
Speaker 1: when you say a few thousand pounds of exactly how
Speaker 1: this might work. I mean, the only thing I've seen
Speaker 1: is one a couple of the rulings so far, it
Speaker 1: looks like there's about two percentage points in it in
Speaker 1: terms of the discretionary commission. And then the FS insisted
Speaker 1: on one of those cases that went through that the
Speaker 1: difference was paid back, but with an interest rate of
Speaker 1: eight percent on that gap.
Speaker 2: Yeah, so eight percentage is the standard rate that you
Speaker 2: often get applied in these types of cases. At the moment,
Speaker 2: it's all a bit up in the air because we've
Speaker 2: just had these court rulings. So everything is really hinting
Speaker 2: on now the appeals, and which is why the FCA
Speaker 2: itself has actually issued a notice to all of the
Speaker 2: different players in this, all the car finance companies, to
Speaker 2: say there's a moratorium and moments one claims pending the
Speaker 2: outcome of these legal cases. But after that, and I
Speaker 2: guess we're really waiting to see if the Supreme Court
Speaker 2: will take up the case. I think the expectation is
Speaker 2: the Supreme Court will take up the case and probably
Speaker 2: take it up pretty quickly, and then once we've got
Speaker 2: a ruling there, then you have a far better idea
Speaker 2: of how this is all going to play out and
Speaker 2: what people might reasonably expect. But obviously anyone telling it
Speaker 2: at the moment exactly what you can get can't be
Speaker 2: telling the truth because no one knows until the course of.
Speaker 1: Rule in this well, that takes us neatly to the
Speaker 1: assumption that there's going to be a big pal of
Speaker 1: scams around this in the same way that they were
Speaker 1: around PPI amoralty that will be totally legitimate claims companies
Speaker 1: that will be suggesting that they help you with your
Speaker 1: claim right eleanor that that's going to happen just like
Speaker 1: it did last time. Yes, in theory.
Speaker 3: Yes, when I was speaking to people about it last week,
Speaker 3: they were kind of saying you might also get lawyers
Speaker 3: who jump on it as well, the kind of ambulance
Speaker 3: chasers who will kind of make money and profit off
Speaker 3: of people being on search amount whether or not going
Speaker 3: to have a claim and if they can take it
Speaker 3: to court.
Speaker 1: So yeah, I'm sure there will be. Well, you can
Speaker 1: already see those on social media. They're already out there saying,
Speaker 1: you know, you can claim going back twenty years etc.
Speaker 1: On your car finance. But as we've discussed as a
Speaker 1: much easier way to do it, you don't have to
Speaker 1: use a claimed company. You simply use one of the
Speaker 1: template letters they are exelcted you very much. Look out
Speaker 1: for the difference between a legitimateclaims company, which again we
Speaker 1: don't suggest to use, and a scam. And if you
Speaker 1: do use a logist mcclaims company, you will find that
Speaker 1: you'll be giving part of your compensation away to them,
Speaker 1: which you don't really want to be doing either. No,
Speaker 1: definitely not.
Speaker 2: There's also an interesting question here for the car industry.
Speaker 2: There obviously the lights of VW aren't doing so well,
Speaker 2: at the moment factory closures. Now you see that potentially
Speaker 2: VW's own financing arm could obviously be among those companies
Speaker 2: are going to have to pay out compensation costs to
Speaker 2: people who've been sold these products over decades. So it's
Speaker 2: probably just another issue for the car manufacturers already struggling
Speaker 2: with evs, already struggling with cost of living crisis, all
Speaker 2: of these kind of things, and it's just another problem
Speaker 2: for them which is probably very unwelcome.
Speaker 1: Interestingly, there was an article on the newspaper the other day,
Speaker 1: and I can't remember who wrote it. I just noticed
Speaker 1: the headline and it said that the headline basically said
Speaker 1: you shouldn't be claiming compensation for this, don't be greedy,
Speaker 1: And I thought, well, that's not quite right, is it,
Speaker 1: because who's been greedy already? Well? Quiet, thank commission takeers.
Speaker 1: So I think the only thing that I would have
Speaker 1: to add that is that I can't think of another
Speaker 1: country anywhere. It must be only in the UK where
Speaker 1: a massive miss selling scandal is actually a positive, because
Speaker 1: in my health, our consumers out we will see, we
Speaker 1: will see. Thank you both very very much, indeed, thanks
Speaker 1: for listening to this week's Maren Talk to Your Money.
Speaker 1: If you like our show, rate review, and subscribe wherever
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Speaker 1: sw and John is John Underscore Stepping. This episode was
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Speaker 1: Money at Bloomberg dot net, and of course thank you
Speaker 1: to Harry and Elanov joining us today and giving us
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