UK Auto Loan Controversy Could Cost Banks Billions
British financial institutions may flee the auto lending sector after a bombshell appeals court ruling put them on the hook for massive consumer payouts, PaymentsJournal reports.
In October, the UK’s Court of Appeal handed down a surprise decision, ruling that auto dealers must obtain informed consent from every customer before receiving “bonuses” from finance sources. Barring a reversal, banks and other finance sources may be compelled to reimburse consumers and work with regulators to craft new rules and disclosures.
“Auto financing has operated like this in the U.S. for years, where banks pay commissions to dealers for originating auto loans on their behalf,” said Don Apgar, director of merchant payments at Javelin Strategy & Research, told PaymentsJournal. “The Finance and Insurance function at a car dealer is where you go to sign the docs and get the sales pitch on the extended warranty, upholstery Scotchgard, and all of the other stuff that dealers make money on.”
