Car finance arrangements in the Channel Islands are coming under closer scrutiny following complaints suggesting some dealers may have used high-interest commission models similar to those banned in the UK.
Channel Islands Financial Ombudsman (CIFO) Principal Ombudsman Douglas Melville said the cases his office has been made aware of indicate that local customers could have been charged higher rates based on discretionary commission agreements between dealers and lenders.
Mr Melville said such cases often involved individuals taking out loans or credit agreements without clear disclosure of interest rates or repayment terms.
Commissions based on “eye-wateringly high” interest rates
“In the UK, discretionary commission arrangements were banned in 2021,” he explained.
“We’re starting to see early signs that similar practices may have taken place here. Car dealers arranging financing could earn commissions based on higher interest rates – sometimes eye-wateringly high.”
Mr Melville said CIFO has flagged the issue to regulators as part of its broader monitoring of systemic risks in financial services.
He said the CIFO had also raised concerns with regulators about other emerging consumer risks, including informal lending and high-cost credit, ahead of Jersey’s forthcoming credit regulation reforms.
“We’ve flagged the need for clearer disclosure standards”
“When I first arrived, unsuitable investment advice was a hot area. The regulator prioritised it and acted. That showed the value of our feedback. More recently, informal lending and high-cost credit practices have been flagged. In Guernsey, lending and credit regulation came in two years ago; Jersey is following.”
Poor interest rate transparency has also been a recurring theme of complaints, Mr Melville said.
“Regulators have acted in other jurisdictions, and we’ve flagged the need for clearer disclosure standards here,” he noted.
Transaction blocking and account closures are also an issue, with many customers often “bewildered when long-standing relationships are suddenly ended”, but fraud – and its increasing sophistication – remains a priority concern.
Mr Meville was speaking to Connect magazine ahead of World Ombuds Day today (9 October).
He described his office, which is this year celebrating its 10th anniversary, as a “canary in the coalmine”.
“[Complaints] point to friction in the marketplace that, if addressed early, prevents greater harm down the road,” he said.
He added that, while “individual complaint resolution is important… the real value is the feedback loop that helps industry improve products and services, helps regulators prioritise, and helps government shape policy.”
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Read the full interview with Douglas Melville here…
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