By Tony Willard
Radical changes in the relationship between dealers and motor finance brokers, and a move towards blanket APR-based loans, are predicted as the impact of the new ‘treating customers fairly’ (TCF) regulation becomes clearer.
Martin Hill, joint managing director at Frontline Solutions, said: “TCF must be at the centre of everything brokers and dealers do. This includes advertising, creating new finance products or initiatives, and communicating with customers.
“For the Financial Conduct Authority (FCA), upholding the principle of TCF always trumps the rules. Companies in the sector must have a robust approach to this and show they are being fair, and not misleading consumers.”
Changes in consumer credit regulations are identical for dealers and brokers. Hill said this meant a big change for dealers because many decided not to embrace 2005’s general insurance regulation regime.
Dealers and brokers have until the end of the year to send applications to the FCA for full permission to provide loans.
“Larger franchised dealer groups are well prepared for the new regulation, but others are unaware of their obligations,” said Hill. “Many dealers and brokers understand what they need to do, but are not comfortable with how they have to do it.”
Frontline has launched DealTrak Live, which Hill said was developed to help brokers support dealers as finance became more complex.
“The system has been engineered to pro-actively address industry trends,” he said. “Its driving force is to allow businesses to do more than just tick regulatory boxes.”
Complexity in motor retail finance is increasing. “The range of loans is widening – once there was prime or sub-prime, now consumers are segmented into many other areas.
“Niche lenders are occupying particular segments. Industry chatter about possible changes to how commission rates are calculated is altering the relationship between dealers and brokers.”
Hill expects some small dealer businesses – perhaps selling a few used cars – to opt out of loans because abiding by the regulations will outstrip potential financial gain. He thinks there may be capacity for regulated companies to take on motor dealers as ‘appointed representatives’, allowing them to act under their compliance umbrella.
James Tew, director at iVendi, expects FCA compliance to lead to changes that will increase transparency. One is a trend away from flat-rate lending (where a percentage of interest is charged each year on the initial loan). He expects a move towards APR-based finance (when the annual percentage rate represents the yearly cost of funds over the term of a loan).
“The traditional flat rate changes from dealer to dealer,” said Tew. “It will become increasingly difficult to justify widely different rates at dealerships for identical products from the same lender.”