Will finance sales become the next PPI scandal?

Increasingly the new controls sought by the Financial Conduct Authority, and in turn, the Financial Ombudsman Service, will give rise to motor retailers who ‘push’ finance coming under the spotlight. 

A recent PPI case that went via the Court route rather than FOS has a clear overlap with plain finance selling.  The case (Michael and Patricia Saville v Central Capital Ltd 2014) was in regard to the sale of a mismatch between the sale of short time PPI (5 years) for a 25 year loan.  This, of course, was not in relation to a sale of a vehicle, and, in fact is the opposite way round from the various PPI-FOS complaints we have dealt with.   PPI issues have generally been in regard to selling a longer term PPI when the customer may have potentially wanted to exchange/sell the car earlier.

However, the very same problems could arise for businesses being pushed by finance companies to sell more ‘commission-earning’ deals.  In turn this could lead to Sales teams/Business Managers looking to move customers into finance deals which are not matching ‘demands and needs’.

In the case above the Judge highlighted the need for

a)    an ‘enquiry’ phase to understand the customer’s demands and needs

b)    an ‘assessment’ phase when the seller needs to assess whether the product is suitable for those demands and needs

If the customer wants an ‘unsuitable’ product the seller must expressly draw the customer’s attention to the demands and needs not met by the policy.

As a case in point, if the customer wants to have the facility to exchange a car every 3 years then the negative effect of a 5 year deal must be drawn to his/her attention (and evidence in writing retained to support this!). This requires to be carefully thought through because many retailers start from the question about budgets e.g.

    ‘how much can you afford per month?’

A 5 year deal may bring the payments down compared with a 3 year deal.  BUT, if the customer wants to exchange the car after 3 years there may be a conflict.

 

Authors: Dennis Chapman

Published: 04 Aug 2014

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