July 25, 2024
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Regulation of motor finance: exploring the implications of Plevin and Wood

The Financial Conduct Authority (FCA) announced on 11 January that it would be investigating commission arrangements in motor finance, sparking significant debate.

While much of the discussion revolves around whether these arrangements lead to “unfair” agreements under s140B of the Consumer Credit Act 1974 (CCA), the reality is more intricate, involving multiple factors beyond just interest and commission rates.

In a recent blog post on February 22, the DWF Finance litigation team delved into the broader context of vehicle finance transactions and the legal precedents set by Plevin v Paragon Personal Finance Ltd and Wood v Commercial First Business Ltd.

Here are some key points highlighted by the legal team:

The complexity of vehicle finance

Buying a vehicle on finance involves various elements such as car price, part exchange value, deposit amount, optional extras, warranty, manufacturer promotions, installment amount, term, and Annual Percentage Rate (APR). These factors, both known and unknown to the customer, collectively determine the value of the deal. Simply focusing on commission and interest rates oversimplifies the issue and neglects the unique nuances of each transaction.

The importance of negotiation in motor finance

Motor finance agreements are the result of negotiations between the dealer and the customer. The interaction of various factors can lead to adjustments that benefit the customer, even in the presence of a commission. Therefore, assessing the fairness of a deal requires a comprehensive view of all components, not just the commission structure.

The judicial perspective: a thorough examination

When courts assess the fairness of an agreement, they consider all the circumstances of the specific transaction. This nuanced approach differs from the narrow focus on commission that some consumer advocates emphasize. Key cases like Plevin and Wood underscore the importance of evaluating all aspects of a deal but also underscore significant differences from motor finance agreements.

Distinguishing factors in the Plevin case

In the Plevin case, the Supreme Court ruled that the non-disclosure of substantial commissions in a Payment Protection Insurance (PPI) policy made the credit relationship unfair. The case hinged on the high commission rate (71.8%) and the lack of disclosure by the lender. In contrast, commissions in motor finance are typically lower, and they are not received directly by the lender. The responsibility for disclosure rests with brokers or dealers, not lenders, setting these cases apart from Plevin.

Furthermore, Mrs. Plevin’s decision to purchase PPI was influenced by the undisclosed commission, whereas motor finance customers compare different finance options with transparent cost information, enabling informed decisions. Therefore, the unfairness in Plevin may not directly apply to motor finance scenarios.

Different contexts in the Wood case

In Wood, the Court of Appeal addressed unregulated commercial lending where the broker, engaged by the customer, failed to disclose a commission exceeding £250. The role of the broker and the customer’s contractual relationship with the broker differ significantly from the dynamics in motor finance. In motor finance, dealers operate as principals, not agents, with no obligation to provide unbiased advice, unlike mortgage brokers in the Wood case.

Implications for the FCA investigation

The FCA’s investigation must take these distinctions into account. While insights from Plevin and Wood regarding the impact of undisclosed commissions are valuable, the contexts of these cases differ substantially from regulated motor finance transactions. A thorough analysis must consider all aspects of a transaction to determine its fairness, recognizing that a dealer’s commission can coexist with a beneficial deal for the customer.


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