Close Brothers Motor Finance and the Discretionary Commission Controversy
Close Brothers Motor Finance, a major player in the UK car finance market, has found itself embroiled in the ongoing discretionary commission scandal. This controversy revolves around the practice of car dealerships receiving varying levels of commission from finance providers for selling their products, often without full transparency to the customer.
Close Brothers' Role:
Close Brothers operated a discretionary commission model where dealerships had the power to set the interest rate on a loan, and consequently, their own commission. This lack of transparency raised concerns about potential conflicts of interest, with dealerships potentially prioritizing higher commissions over securing the best deal for the customer.
Key Developments:
- Court Rulings: A landmark Court of Appeal ruling in 2023 determined that motor finance brokers, including those working with Close Brothers, have a duty of loyalty to customers and must provide full disclosure on commissions. This ruling has significant implications for Close Brothers and the wider industry.
- FCA Review: The Financial Conduct Authority (FCA) launched a market-wide review into discretionary commission arrangements in the motor finance sector. This review aims to determine whether customers were overcharged due to these practices and ensure fair compensation.
- Share Price Impact: Close Brothers' share price has been negatively impacted by the controversy and the FCA's ongoing investigation. Investors are concerned about the potential financial implications of redress and reputational damage.
- Operational Changes: In response to the court ruling, Close Brothers temporarily stopped underwriting new dealer finance and is currently reviewing its commission structure.
The Wider Issue:
The discretionary commission scandal highlights a lack of transparency and potential consumer detriment within the motor finance industry. It raises questions about the fairness of commission structures and the role of dealerships in securing the best deals for their customers.
What's Next?
- FCA's Findings: The FCA's review is ongoing, and its findings will be crucial in determining the extent of consumer harm and the appropriate redress.
- Potential Compensation: Close Brothers may be required to compensate customers who were overcharged as a result of discretionary commissions.
- Industry Changes: The scandal is likely to lead to significant changes in the way motor finance is sold, with greater emphasis on transparency and customer fairness.
Close Brothers' involvement in the discretionary commission scandal underscores the need for greater transparency and ethical practices in the motor finance industry. The outcome of the FCA's review and any subsequent actions will be closely watched by consumers, industry players, and regulators alike.
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