Car finance redress: burden of proof lies with lenders, not customers
As the motor finance commission scandal heads toward a potentially landmark ruling from the Supreme Court in July, Lloyds CEO Charlie Nunn recently asserted that no harm was done to consumers by the high street bank he leads, a view which Julian Rose, Director at Asset Finance Policy Limited, says is largely correct.
Nunn told MPs at the Treasury Select Committee this week that Lloyds, via its motor finance arm Black Horse, caused no financial harm to customers. His argument is grounded in pricing: Black Horse typically offered some of the lowest interest rates in the market. Therefore, even if customers were not told that car dealers were earning commission, they were unlikely to have secured a better deal elsewhere. On this basis, Nunn argues that without demonstrable financial harm, there is no requirement for redress.
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“In the case of Lloyds,” writes Rose, “from at least the time the FCA took over consumer credit, its Black Horse car finance arm has typically offered some of the lowest rates in the market. So in most cases, it seems implausible that customers could [have] made any material savings by shopping around.”
But importantly, he adds: “In my view, it will not be for consumers (or their representatives) to show evidence of harm. It will be for the car finance companies to show evidence of no harm. That means for each agreement, they will need evidenced that the rate provided was competitive with an industry benchmark rate.”
In other words, the burden of proof lies with the lender. If the Supreme Court confirms that lenders were required to disclose commission arrangements, it will fall to the firms, not customers, to show that a lack of disclosure did not cause financial harm.
Rose describes the burden of proof falling on the lender as: “a challenge but still very achievable. For each year, there needs to be a standard table showing benchmark rates for similar loans and for similar customers e.g. similar credit score. Where the customer paid near the benchmark or below it, then it should be reasonable to assume there was no harm.”
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By GlobalDataHe also believes that for most other lenders, customers would not have made materially different decisions even with full disclosure, but if firms cannot provide robust evidence that their rates were competitive and fair, they should expect to pay compensation.
In pure operational terms, says Rose, the question now is whether lenders have the data and systems in place to show, convincingly, that harm did not occur.
Over to you, lender compliance and underwriting teams.
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