Helping dealers make sense of FCA regulation
Since the announcement in 2013 of significant changes to consumer credit regulation, finance companies, brokers and motor dealers have wrestled with the challenges and changing landscape of UK motor finance and the associated responsibilities of regulation. In April 2017, the FCA undertook a review of the motor finance sector to better understand the use of motor finance products and the sales processes employed by lenders and dealers. Whilst the review is still on-going, an ‘update’ recently released by the FCA, helps us to gauge the direction and conclusions expected once the review is finalised later this year. Here are the relevant points:
- Are firms managing the risk that asset valuations could fall and making sure that they are adequately pricing risk?
- Are firms taking the right steps to make sure that they lend responsibly by appropriately assessing whether customers can afford the product in question?
- Are there conflicts of interest arising from commission arrangements between lenders and dealers and, if so, are these appropriately managed to avoid harm to consumers?
- Is the information provided to potential customers by firms sufficiently clear and transparent, so that they can understand the risks involved and make informed decisions?
From a dealer’s perspective, points 3 and 4 are particularly relevant. The FCA’s rationale is outlined further below:
‘’Some types of commission arrangements can provide incentives for dealers to arrange finance at higher interest rates for their customers. We are assessing whether the risks are adequately controlled by lenders, to minimise the potential for harm to consumers. This includes whether lenders and dealers acting on their behalf comply with current regulatory requirements. We are also testing whether commission structures have led to higher finance costs for consumers, because of the incentives they create for brokers.’’
Transparency of information provided to customers at the point of sale
‘’We are looking at the customer journey, including through a mystery shopping exercise. We are assessing whether firms are complying with current regulatory requirements and whether consumers are being given the right kind of information, at the right times, to make informed decisions.’’
The full report is expected by the end of September 2018. At that stage, the FCA will publish their findings, setting out any areas of concern they have identified and how they intend to tackle those issues. In the meantime, should you wish to read the full interim report, you can access it via the FCA website using this link https://www.fca.org.uk/publication/research/our-work-on-motor-finance.pdf