Lenders Should Be Careful What They Wish For

There is something almost impressive about the motor finance industry’s ability to keep finding new ways to insult the intelligence of consumers.

After years of hidden commission arrangements, years of customers being kept in the dark, and years of lenders and dealerships quietly benefiting from a sales model that rewarded higher interest rates, we are now seeing recent posts and publications from those within the lender world suggesting that, without an FCA redress scheme, there is apparently some sort of “vacuum” around what should be considered unfair.

A vacuum.

Really?

The suggestion appears to be that lenders are now wandering around in the dark, scratching their heads, wondering how on earth they are supposed to identify unfairness unless the FCA kindly draws them a colour coded map. Even more remarkably, some have gone further and suggested that many discretionary commission arrangements may not actually be unfair at all.

That, frankly, tells you everything you need to know about the mindset that UK consumers are up againsts.

Let’s Stop Pretending This Is Complicated

A discretionary commission arrangement was not some harmless technicality buried in the mechanics of motor finance. It was a carefully designed system that allowed the dealership to adjust the customer’s interest rate, with a higher rate producing more commission.

That is the bit that matters.

The customer was not being told that the person selling the finance could have a financial incentive to increase the rate. The customer was not being told what lower rate had been automatically accepted by the lender. The customer was not being asked whether they were happy for the rate to be increased so that the dealership could earn more money.

And that is the point lenders and their apologists seem desperate to dance around.

For a DCA not to be secret, the conversation would have needed to sound something like this:

“We have obtained finance for you at one rate, but we are proposing to increase it because that will generate more commission for us. The lender will receive more interest, the dealership will receive more money, and you will pay the bill. Are you happy with that?”

Of course, that conversation did not happen.

If it had happened, consumers would have asked the obvious question… why should I pay more so that the dealership can earn more?

The very idea is ludicrous, yet we now have people connected to the lending side seemingly trying to float the idea that many DCAs may not have been unfair. If that is genuinely how parts of the industry still view fairness, then the problem is even deeper than consumers already suspected.

“We May Receive Commission” Was Not Disclosure

For years, motor finance documents were littered with vague, carefully diluted wording. Consumers were often told that the dealership “may” receive commission, or “will” receive commission, as though that somehow gave the customer a meaningful understanding of what was actually happening.

It did not.

Telling someone that commission may exist is not the same as telling them that the finance rate may have been increased to generate that commission. It is not the same as telling them what the automatically accepted rate was. It is not the same as telling them how much commission was being paid. It is not the same as telling them that the person arranging the finance may have had a direct financial incentive to make the customer’s borrowing more expensive.

That is the difference the industry still seems determined not to confront.

A vague reference to commission buried in paperwork does not turn a hidden incentive into informed consent. It does not make the arrangement transparent. It does not mean the customer understood the conflict. It does not mean the customer agreed to pay more.

The industry can dress it up however it likes, but the central issue remains painfully simple… customers were not properly told how the arrangement worked, and they were not properly told how it affected the cost of their finance.

In short, DCA’s were fully secret, and deliberately kept that way.

The “No Scheme Vacuum” Argument Is Embarrassing

The argument that there will be some sort of vacuum without an FCA redress scheme is not the clever point some in the industry appear to think it is.

If anything, it is an admission.

It suggests that, even after all of this, lenders still want someone else to tell them what fairness looks like. They want the regulator to create a controlled scheme, a neat framework, a manageable formula, and preferably a watered-down outcome that limits the damage and keeps the system standing.

However, they only want a controlled scheme if it is generous to lenders, and ensures they walk away in profit.

Fairness doesn’t come into the equation, and questioning what is fair only serves to prove that mis-selling is built into the culture.

If the customer was not told that the dealership could increase the rate to earn more commission, that is unfair.

If the customer was not told the lower rate that had been accepted, that is unfair.

If the customer was not told how much commission was being paid, that is unfair.

If the customer was not told that the person arranging the finance had a financial incentive that conflicted with the customer’s interest, that is unfair.

That is not a vacuum, it is common sense.

The only people pretending it is complicated are those with a commercial interest in making it complicated.

The Industry’s Sudden Concern About Representative Fees

Perhaps the most laughable part of this latest round of commentary is the attempt to point the finger at representative fees.

This is quite something.

The same industry that operated hidden commission models, vague disclosures, conflicted incentives and self-serving sales structures now wants to lecture consumers about fees charged by representatives.

There is, however, one rather important difference.

Representative fees are set out in agreements signed by the customer. The customer is told what the fee is. The customer is told when it may be charged. The customer is provided with the terms before agreeing to proceed.

That is called disclosure.

That is called transparency.

That is called consent.

It is not a vague line saying “we may receive a fee” while failing to explain the mechanism, the amount, the conflict, or the impact on the customer. It is not a hidden arrangement operating behind the scenes while the consumer is presented with a finance offer they are led to believe is simply the cost of borrowing.

The attempt to compare disclosed representative fees with hidden discretionary commission arrangements is desperate. Worse than that, it is revealing, because it shows that some in the industry still do not appear to understand the difference between transparent charging and concealed financial incentives.

Lenders Should Be Praying For A Scheme

The irony in all of this is that lenders may want to be very careful what they wish for.

They may think attacking a redress scheme, questioning unfairness, and floating arguments that many DCAs were not unfair will help them limit the damage. They may think that undermining the need for redress will buy time, reduce liability, or create confusion.

But the truth is that many lenders should probably be praying for a scheme.

A scheme, even a heavily diluted one, at least offers structure. It offers containment. It offers a route to resolution that the industry can understand and administer. It gives lenders a framework within which they can attempt to draw a line under years of misconduct.

Without a scheme, the position will become far more dangerous for them.

If consumers are forced down individual complaint routes, litigation routes, ombudsman routes, and full disclosure routes, the industry may find itself facing a much wider exposure than it currently seems to appreciate. Complaint files will be requested. Commission arrangements will be scrutinised. Internal processes will be examined. Dealer agreements will be dragged into the open. Lenders will be asked what they knew, when they knew it, and why consumers were not told.

That is the world lenders may be walking into if they continue pretending that this is all too uncertain to deal with.

This Was Never About Confusion. It Was About Control

The motor finance industry does not need a redress scheme to understand the basic unfairness of a secret commission model. What it needs a scheme for is control.

Control of the process.

Control of the cost.

Control of the narrative.

Control of the damage.

That is why the “vacuum” argument should be seen for what it is. It is not a serious complaint about legal uncertainty. It is an industry struggling with the fact that the old model has been exposed, and the usual escape routes are becoming harder to use.

For years, customers were kept away from the truth. They were not told the accepted rate. They were not told the dealership could increase the rate. They were not told the amount of commission. They were not told the true nature of the conflict.

Now that consumers and representatives are forcing the issue, the same industry wants to complain that the path to redress is unclear.

How convenient.

The Walls Are Starting To Shake

The lenders now trying to minimise the issue should remember one thing… this scandal did not happen because consumers misunderstood motor finance; it happened because consumers were not given the information they needed to understand it.

That is the foundation of the problem.

Not confusion, not paperwork, not hindsight, concealment.

The industry can continue trying to suggest that not all DCAs were unfair, but that argument looks increasingly absurd when the whole model depended on customers not being properly told what was happening. If a customer was not told that the dealership could increase their interest rate to earn more money, then the customer was denied the chance to make an informed decision.

No amount of industry commentary changes that.

So yes, lenders may wish to keep attacking the idea of a redress scheme. They may wish to keep pretending that there is some mysterious vacuum around fairness. They may wish to keep pointing fingers at representatives, as though disclosed fees are somehow comparable with hidden commission models.

But they should be careful.

Because if there is no scheme, the industry will not get the neat, controlled, manageable outcome it appears to want. It will instead get thousands upon thousands of complaints, disclosure requests, legal challenges, and decisions that expose the true scale of what was done.

And at that point, the walls of this rotten, self-protecting industry will hopefully come crashing down.