Initial responses from the automotive industry to the long-awaited Financial Conduct Authority (FCA) report into the motor finance sector have generally been positive to the suggested changes, though some have said the mystery shopping exercise was based on flawed methodology.
A focus of FCA criticism in its report was the ‘Difference in Charges’ (DiC) broker commission model which gives brokers discretion to set the customer interest rate and thus earn higher commission. The FCA also sent mystery shoppers into motor retail outlets, and criticised a perceived lack of information and affordability assessments sometimes provided for motor finance deals at the initial stages.
From an industry body perspective, Gerry Keaney, British Vehicle Rental and Leasing Association (BVRLA) chief executive, said: “The time for excuses has passed. There is no place in the motor finance sector for companies that are unwilling to embrace the FCA regime and actively demonstrate their compliance.”
Sue Robinson, director of the National Franchised Dealers Association (NFDA), said: “NFDA acknowledges the outcome of the FCA’s enquiry into motor finance and urges consumers to visit reputable franchised retailers and shop around before agreeing any finance deals when buying a vehicle. Standards and integrity are vital to the future of our sector.”
However, motor retail professionals have also pointed out potential flaws in the FCA’s ‘mystery shopper’ approach to assessing dealer’s affordability checks. In the report, the FCA: “Found evidence that disclosures or explanations given during the initial visit were often incomplete, and sometimes potentially misleading.”
According to Neil Watkiss, head of consumer credit at DealTrak: “With the FCA findings there was an important proviso. By not following the customer journey all the way through to the final sale, the FCA was “unable to fully test all elements of pre-contract disclosure and explanations.”
“The FCA also implies that lenders are more invested in their own credit risk, than assessing the affordability of the loan for the customer, when of course dealers and brokers have a significant role to play when it comes to establishing affordability.”
On the subject of potential industry changes following the report, Stephen Dawson, head of Shoosmiths’ Financial Services, said: “Our own view is that the market has moved very far in the last 12 to 18 months, and a lot of work is ongoing. It is disappointing that the lenders who have responded positively to FCA guidance, and new rules, find that the market is being led towards much stricter governance because of a broader failure in parts of the market.”
Among the motor retail figures providing comment, there was an expressed desire to work with the FCA and to improve the industry based from findings in the report.
Jane Tully, director of external affairs at the Money Advice Trust, said: “The FCA has rightly thrown a spotlight on motor finance and we welcome in particular the regulator’s commitment to remind firms of requirements around assessing affordability.
“We should remember that car finance deals are a popular way to access a car that may otherwise be difficult to obtain. However, it is crucial that firms fully assess consumers’ affordability and that consumers are clear on the terms they are signing up to at the outset.
James Fairclough, chief executive officer at AA Cars, said: “The FCA report is in line with our own belief that the industry needs to do more to help customers really understand the choices open to them.
“It is key that we simplify car finance for the general public and make it more transparent, so customers can make informed decisions. Importantly, what shouldn’t be inferred from this report is that there’s a fundamental issue with the finance products themselves – instead the issue is how they are sometimes presented to the public.”
The long-awaited report follows the announcement that the FCA would conduct an investigation into the sector in 2017. It issued an update in March 2018, which identified the conflicts in commission arrangements as a key concern.