Car dealers are warning the market has been thrown into chaos by the decision of the Appeal Court last week on commission disclosure to customers.
Following the ruling, Close Brothers Group PLC (LSE:CBG), the plaintiff in one of the three cases, said it would temporarily stop writing new car loan business until the situation was clarified.
Other lenders have also stopped car finance new business since, including MotoNovo, Northridge Finance and Blue Motor Finance alongside BMW, Secure Trust Bank, Zopa and Investec.
Lloyds, one the banks said to be most exposed to possible claims, has also reportedly stopped paying bonuses to dealers from today and introduced a no-commission contract.
Trade press reports indicate that some customers are unable to collect cars purchased through finance plans because lenders are withholding funds until there is clarity on the new disclosure rules.
The Court of Appeal has ruled that car dealers cannot receive commission payments for arranging finance without disclosing these payments to customers.
According to reports, dealerships are ‘rushing through’ new systems to display commission levels. However, without clear guidelines, this could result in serious financial issues for dealerships reliant on commission income.
One source told Car Dealer it could take up to ten days to implement the new procedures, which is "causing major disruptions in the industry".
Mortgage brokers already detail commissions in their customer documentation, and a similar approach is expected to be adopted in the car sector.
Shares in Clos Bros dropped 1.4% to 240p, and Motorpoint fell by 1.9% to 155p.