Premium Finance providers leave brokers confused on commission disclosure
Commission disclosure requirements in Premium Finance remain unclear, not helped by the inconsistent approach between the major providers.
Potential issues have been known for a while. The recent Court of Appeal judgements in motor finance have wiped large value from the share price and equity value of some lenders and focused lenders minds in other areas like insurance finance.
As far back as May, BIBA’s premium finance guide said, “Your finance provider may require you to disclose each of these [net rate, charge out rate, commission in £] to avoid any potential risk to you from non-disclosure”.
In the last few weeks, one IPF lender has withdrawn from regulated business, another launched digital disclosure/consent, and the longest established provider has mirrored the wider asset finance community. Against this, the largest provider of regulated loans in the sector appears to be operating BAU, relying on compliance with the historic FCA requirements.
This is a fast-moving issue. Peer pressure may even have changed the positions above by the time you read this.
Only time, the outcome of Supreme Court appeal, and the FCA, will tell whether these approaches were knee jerk reactions or a sensible approach to stem ongoing issues. In the wider asset finance markets (like motor/equipment finance/short-term lending for products like tax and VAT) lenders have almost universally moved to disclose commission and gain consent from regulated borrowers. It is difficult to see why premium finance would be different.
It will be interesting to see whether insurance brokers side with processes that appear to align with the rest of the UK credit broker world, or run the risk of a solution that lets them carry on BAU, but potentially exposes them to additional risks in the long-term.
The “go-forward” position is only one part of the exposure in this area. By far the bigger risk hanging over IPF lenders is the prospect of commission rebates like those muted in motor finance. RBC Capital estimated one lender’s exposure at £100m but this could be the tip of the iceberg if the FCA goes back as far as proposed in motor finance. Lloyds Bank has a £30billion plus market capitalisation but shares took a hit, what could the impact be on capital bases and equity values of premium finance companies?
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