I first needed a bank account when I went to university and at that time everything seemed straightforward. Midland Bank had a portacabin behind the student union building and the only three things that were important were a chequebook, trying to keep a tally on how much of my student loan I’d spent and being able to access cash at a time when cash machines were being rapidly installed. That said, one of the students on my course couldn’t understand why the amount of money on their statement kept going up the more money they withdrew. I’ll leave you to figure out the sheer stupidity of this!
In the UK cash is no longer king and whilst the ability to pay using a contactless card, mobile phone or a watch (implants are also being tested) has rendered cash almost redundant it has resulted in a significant number of shops that no longer take cash. Due to the challenges in the UK economy ,there has been a clamour to reverse this trend as it typically impacts the elderly and lower earners, who are more likely to manage their spending day to day based on the cash they have readily available.
In the last 20 years, banks have suffered from a number of scandals that have resulted in them paying huge sums in compensation, the most notable being the mis-selling of;
- Financial Products (Payment Protection Insurance/PPI – linked to Loans, Pensions and Endowments).
- The Libor (London Interbank Offered Rate) Scandal – which involved banks manipulating the benchmark interest rate to their own benefit, which led to a global financial crisis
- Anti-Money Laundering Failures – which potentially increased the likelihood of financial institutions being used for illicit activities
The latest ‘scandal’ being investigated by the Financial Conduct Authority (FCA) is the Motor Finance Scandal, which could rival the PPI scandal in scale. In the UK, around 90% of new cars are purchased using finance options. The controversy centres around the potentially undisclosed commissions paid to car dealers when arranging finance deals, which the Court of Appeal ruled unlawful due to the failing to disclose the amount of commission paid to car dealerships, and receiving their informed consent, was unlawful. This ruling has left car lenders fearing a compensation bill of up to £44bn, which could lead to a spillover on a wider range of financial products including insurance.
At the core of this issue is what information needed to be shared, which is something very important when embarking on a negotiation and managing its progress. Some years ago, whilst waiting to pay for a car (on my debit card), I asked the person managing the transaction how many cars they sold in a week (100 on weekdays/200 on weekends was the answer) and then followed by how many of the cars were purchased via through a loan deal the answer to which was 80%. It became very clear to me at that point that given the attractive price of their (mostly ex-lease) cars and the choice available, that they made bulk of their money primarily from the difference between their borrowing costs and the rate they charged their customers. My personal view is that had they disclosed the amount they made (which was in the small-print) that this would have made very little difference to my buying decision.
Indeed the FCA have disagreed with the court of appeal’s decision as car dealers ‘do not typically’ have a requirement to act in consumers’ best interests, and that this would be ‘at odds with the legislative and regulatory framework’. Whilst the car dealerships warned that the standing decision would create ‘financial chaos’.
As negotiation experts, we advise participants to give information that helps their situation and getting information from the other party that informs your ability to give the other party what they want on terms you can accept.
In truth human behaviour is primarily driven by emotion, hence why most advertising focuses there, more than it does the bare facts. In the case of cars (a very transparent market) – brand, model, colour, engine size, mileage, wear and tear and warranty are likely to be the key components. Who benefits from the interest charges would be a very long way down the list of considerations for the buyer and I would argue it isn’t worth paying out £44bn to buyers whose decisions would not have been different, had they known.
