Been reading about this on the Beeb’s website. Is this a real issue, or manufactured by the media and/or lawyers?
My understanding is that the finance company gives a kick-back to the car dealer for steering the customer towards a finance deal, rather than paying cash. But surely, whether this is explicitly declared or not, is not the customer told how much the purchase will cost in totality? (As in ‘over and above’ the cash price.) And is then free to make his/her own mind up as to whether accept the uplift, and proceed with the finance deal or not?
You agree to buy a car at £x. You can then choose to pay the cash price of £x up front, or take a longer term finance deal which will cost an extra £y.
If you go with the finance deal, your total cost is therefore £x+y. You have agreed to pay that amount, why should you care where the money goes?
I believe the crux is that individual sales reps were offered commission to offer longer, more expensive finance deals, resulting in buyers being put under undue pressure at the sales desk. Having heard the news stories about this this I was reminded of an experience I had some years ago where a sales rep became visibly perturbed when I sought a short finance deal as opposed to the 5 year option that he was pushing on a car. Since the GFC I believe providers of financial products have had to demonstrate that their offering is in the customers interest and affordable. I presume the legal action was brought based on this. In my situation a one year deal at higher rate was cheaper in total than the 5 year deal the rep was trying to push on me.
If you’d read Arthur Haley’s novel “Wheels” then you’d know about this after the first couple of chapters .
But my point remains, you have the choice of either agreeing to pay, up-front, the “ticket price” or to arrange a “long(er) term” finance/credit deal, which inevitably comes with an additional cost. Of course the third option is to not proceed at all.
We’re talking about the purchase of an item on credit (and of course, you take possession of the item in question), rather than somewhat dubious promises of wealth and riches at some point in the future, as in the the case of, say pensions.
Regulation requires transparency so you can make an informed decision. These deals weren’t transparent. You can have a problem with the industry that’s build around these illegal practices but that’s a secondary issue. The regulations are there to protect customers for paying too much.
But I say again. You enter an agreement with a financial institution to purchase a vehicle. The terms of the agreement are laid before you with the total amount payable. You can do the sums to work out how much over the ticket price you will be paying, and then decide whether that amount is acceptable to you. That is your “informed decision”.
That’s not enough to be an informed choice under the law.
In the court decision this week someone paid over £1200 more than they needed to with their own bank (Barclays) because of the dealers (undeclared) interest.
But the hidden commissions are irrelevant. If you decide to take an extended warranty, then the price is £x., if you want the paint protection then that is £y. Those are the prices, at point of sale. You might consider that the costs are too high, so then don’t take up the offers.
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