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Car dealers worry over lenders' conflicting FCA rules

By Tony Willard

Dealer groups have expressed concern at a lack of consistency among lenders over how to introduce compliance with new Financial Conduct Authority regulations.

Mark Lloyd, head of compliance at DSG Finance, said: “Each lender appears to have its own interpretation of the rules, which is affecting how packages and affordability assessment need to be structured.”

This is making it even more difficult for dealers to manage multiple funder relationships, he said.

“They will have to abide by different policies and procedures that will then need to be communicated, monitored and reported on across networks of dealerships.”

Lloyd said dealers were particularly concerned about their 2015 budgets because F&I income is a key contributor.

“Dealers we have relationships with appear to be proactive to ensure their businesses make changes needed to operate compliantly,” he said.

“Because the majority of funders have not committed to their pricing strategy, most dealer groups are uncertain as to what affect the changes will have on their F&I income, making it difficult to set budgets with confidence.”

Lloyd criticised a lack of urgency by most lenders to declare their package policy, saying most were hoping to secure a competitive advantage by waiting to see what everyone else did.

“Then they gauge reaction to see how popular other lenders’ strategies were with dealers,” he said. “The worst mistake a dealer can make is to start to address FCA matters too late. This regulation work takes longer than anything the industry has faced before, and some dealers and others who underestimate this will be under pressure.”

A survey for Hitachi Capital Motor Finance suggested 42% of dealers could not forecast the effect of FCA compliance on their businesses, with two groups of 29% each expecting negative and positive impacts.

Gerald Grimes, managing director of Hitachi Capital Consumer Finance, (pictured) said flexible finance packages could drive dealer growth: “Our research with dealers shows one in four see over 75% of new car sales linked to finance, and over 55% believe used sales will follow the same trend.”

Chris Sutton, managing director at Black Horse, said it was a positive that the Hitachi survey’s findings indicate dealers feel broadly content they are able to determine whether a customer can afford finance.

“That fits in with our own view,” he said. “Rather than creating an insurmountable task, the regulations provide finance providers and dealers with an opportunity to demonstrate they are transparent in how financial products are priced and that they treat customers fairly.”

Sutton said the FCA regulations created a shift, making lenders and dealers more accountable for setting up clear and affordable finance deals: “In our experience, most dealers have recognised the need to respond and to improve standards.”

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