In March, the Financial Conduct Authority’s (FCA) report into the motor finance sector was published. Their review which commenced in July 2017, was set up to ask questions about whether car dealers were lending in a responsible, fair and transparent manner.
The result of the report is that the FCA expects all lenders and brokers to review their processes and amend where necessary.
Of particular concern to the FCA, was a broker’s ability to choose which deal to offer the consumer based on the level of commission they would receive from broking the deal (Difference in Charges models). As with everything FCA, they want to ensure that the consumer gets the best deal and is protected from any unfair practices. Brokers having the ability to charge the customer a higher interest rate purely so they can earn more commission was of significant concern to the FCA and they will be looking at potentially banning the DiC model.
Commission transparency is a general bugbear of the FCA and their concerns were heightened by their 122 mystery shopper visits which saw only 1 out of 37 franchised retailers, 4 of 60 independent retailers, 2 of 14 Car Supermarkets and 4 of 11 online brokers disclose that a commission may be received for arranging finance. The FCA accept that commission may have been declared at a later stage of the process but they felt this was potentially too late.
Even in the cases where there was early commission disclosure, the FCA felt this was often not clear enough and could lead to potential breaches of the Consumer Credit Sourcebook (CONC).
Further, the FCA found that the benefit of lower monthly payments as part of a PCP deal was generally promoted but that the downside of PCP and the comparative benefits of other finance options were not readily made available.
On the back of this report, changes are almost certain and so dealers should start to review processes to ensure they meet the requirements of the CONC and in particular, ensure there is transparency around commission as well as the usual care over customer affordability.
A thorough review now will help you keep the ‘ambulance chasers’ away as those chasers will be busy now hunting down the final few mis-sold PPI claimants but come August 2019 when the PPI deadline closes, PCP and ‘mis-sold’ car finance will be their bread and butter. Mis-sold PPI adverts will be replaced with mis-sold car finance adverts so act now to get your processes and paperwork in order to protect your bottom line.
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