Independent dealers began applying to the Financial Conduct Authority (FCA) for full permission for consumer credit from the start of the year.
Motor finance providers have been keen to emphasise the importance of dealers sticking to their pre-determined three-month landing slots. Doing so extends the interim permission while the FCA considers the application. Failing to do so means the interim permission ends, leaving dealers unable to offer finance and criminally liable if they continue to do so while unauthorised. The FCA certainly has teeth – in 2013 a former mortgage adviser who continued to advise clients despite having no authorisation was prosecuted and jailed for two years.
Dealers seem clear on the need for FCA authorisation, but some have told AM they still feel in the dark about what its principles-based regulation may mean in practice. Many see the advice of their lenders as critical guidance, but different lenders have differing interpretations of what the FCA expects.
Some lenders have told AM that it could be 12 months or more until the motor industry is more clear on what changes are required.
The overriding message for dealers is to have a customer-focused sales process and, just as importantly, document it and be able to prove it is working.
Meanwhile, the FCA has published a series of guides and tools to help dealers understand the new regulatory regime and it has a helpdesk to support firms with questions.
At MotoNovo Finance, head of sales and marketing Karl Werner warned that the cost of providing finance in the showroom “will unquestionably rise” under the new FCA regime. The key to offset this will be in making dealer finance more attractive to more customers and earning a “little from a lot”, a principle that embraces the spirit and letter of the new regime and which will help to sell cars as well as finance, he said.
“Dealers really must work to get their finance ‘front and centre’ in the customer’s buying cycle” Karl Werner, MotoNovo Finance
“To be more effective in this regard, dealers really must work to get their finance ‘front and centre’ in the customer’s buying cycle and for most that will mean making finance more transparent and obvious online.”
Werner believes the FCA regulation could mean it is time for dealer finance to ‘seize the day’ and overcome negative perceptions that help to ensure many used car buyers opt for a personal loan instead. The key, he observes, is the transparency now required under FCA regulation and a willingness to embrace change as an opportunity. Personal loan providers make comparing representative APRs easy, but the absence of pricing information on a dealer website risks undermining the dealer proposition, he said.
“To get dealer finance on the front foot, we need to achieve a far higher presence via dealer websites in a highly FCA- compliant manner. We’ve developed the web tools to help, and together with our dealers, we aim to ensure dealer finance becomes the financing method of choice.”
MotoNovo Finance chief executive Mark Standish pointed out a further sales message for dealers offering point-of-sale finance for used cars – the motor finance provider is jointly liable with the dealer for the condition of the car on sale, and should a problem arise will work with the dealer to resolve it.
“If a dealer is approved by MotoNovo, or any other premium finance company, then they should be ensuring that their customers know that dealer finance affords them this extra protection,” said Standish.
Chris Sutton, managing director of Black Horse Motor Finance, said the FCA understands that dealers need to earn rewards for their work when selling point-of-sale finance – a business unable to make profit may struggle to offer decent customer service, but given the new focus on fair outcomes for customers there is more scrutiny on how this reward can be earned. He believes dealers must ensure their sales processes and rewards for staff do not drive unfair customer outcomes and must react positively and quickly when things do go wrong.
One aspect of consumer credit compliance with which some dealers still struggle is commission disclosure. Dealers must explain at the outset that they may earn a commission for arranging a finance agreement, and if asked by a customer, must explain how much that will be. “Anecdotal feedback from recent FCA visits to dealers indicates that this is an area of focus for the regulator,” said Sutton.