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New FCA rules mean commission disclosure for car dealers selling finance

Dealer showroom finance

The Financial Conduct Authority has published its finalised rules for consumer credit companies.

They include a stipulation for commission disclosure to customers before they sign a credit agreement.

That is required if the dealer is acting as a finance broker and that commission could potentially affect the impartiality of the dealership, business manager or broker in recommending a particular product, such as if it will earn him more than other suitable products, or could have a material impact on the customer's transactional decision.

Separately, if a customer requests, prior to the agreement being signed the dealer/broker must disclose the amount, or likely amount, of any commission, fee or other remuneration payable to them by the lender or third party (view documentation).

FCA guidelines

 

The FCA has also clarified that, where practicable, firms should facilitate customers shopping around for credit by offering a quotation search facility.

They should also, when undertaking a credit reference search, not leave evidence of an application on file where that customer is not yet ready to apply, due to it potentially damaging the customer's credit history.

All complaints regarding motor finance, including verbal ones, that cannot be resolved in the same business day must also be logged and reported by firms with full FCA permission.

Dealers with less than £5m annual revenue from credit-related regulated activities will be required to submit reports annually, those with larger revenues will report more regularly. Records must be kept for three years.

Under the new regime, which starts on April 1, consumer credit providers will need to ensure that they give customers the right information to make informed choices, that their services meet consumer needs, and that people in difficulty are treated fairly. 

“Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line," said Martin Wheatley, FCA chief executive.

"The FCA will take a tough approach to consumer credit with stronger powers to clamp down on poor practice than the previous Office of Fair Trading regime.

"Our supervision of firms will be hands on and we will closely monitor how providers treat their customers, in particular those operating in higher risk sectors such as credit cards, debt management and payday.

"We will respond quickly to any issues that are identified and there will be swift penalties for any firm or individual found not to be putting consumers’ interests first, including possible enforcement action and consumer redress."

He said the rule changes announced today will give consumers additional protection from rogue practices and put the onus on credit providers to ensure that they treat customers fairly at all times.

The FCA also said that firms are expected to comply with the 'spirit' of its rules, and not merely the 'letter' of them.

Commenting on the new consumer credit rules Fiona Hoyle, head of consumer finance at the Finance & Leasing Association (FLA), said: “It is obvious that the FCA has listened to a number of FLA concerns and injected a much needed degree of proportionality into their final rules to reflect the diversity of customers and products in the credit market.

“However, today’s package of almost 700 pages will take some time to analyse before the shape of the regime can be fully judged.

“For the 50,000 firms which have only a month to ready themselves for the new regime, this will be a daunting time.” 


Click here to download the FCA's final detailed rules for consumer credit.

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Comments

  • Bradley Wyatt - 28/02/2014 13:40

    Can you direct us to the specific page of the document detailing commission disclosure

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  • anthony - 28/02/2014 13:57

    It sounds to me that it's not going to be economical to offer and arrange finance for customers, best answer would be to direct them to the bank and concentrate your time selling cars!

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  • G60Tim - 28/02/2014 13:59

    Pg 80-81

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  • me - 28/02/2014 15:11

    you need to get your facts correct: it only applies to a credit broker for one, not necessarily a dealer; you only need to disclose existence of financial arrangement unless customer asks for more detail; and I see you have now corrected the conditions upon which disclosure is required!

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  • D Murphy - 28/02/2014 15:37

    What an absolute disgrace this is, especially with the FLA supporting it. As a Commercial Finance Broker, it looks like I will now have to disclose how much I take out of each deal that is written within the Act. Who else has to disclose how much money they make? A car Dealer on the car, A house builder on the house, a Bed Salesman on a bed? No No No!

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    • anthony - 28/02/2014 17:35

      @D Murphy - It's just another brick in the wall. Tony Blair's lot started all this it's just stealth taxes another way of extracting money out of hard pressed businesses. No doubt they will be just as useless as the FSA are!!!!!

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    • D Murphy - 28/02/2014 18:40

      @anthony - The biggest problem I have with all this, would be the complete lack of recognition between business customers and private retail customers. I have non limited company customers who can buy machinery and vehicles for £40/£50'000 or much much more. They make business decisions all day every day, without knowing how much their suppliers are making - BARMY!

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  • Stuart - 28/02/2014 16:24

    I don't think this is the case AM - think you have interpreted this wrong

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  • Warren24 - 02/03/2014 23:06

    If a customer requests, PRIOR to the agreement being signed the dealer must disclose the amount, or likely amount, of any commission. So if they ask post signature can you decline this request or is that against the 'Spirit' of the FCA?

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    • D Murphy - 06/03/2014 01:02

      @Warren24 - Not supposedly, but wait til its all over watchdog on the TV and it will turn into another PPI scandal! I had customers of 15 years standing asking me if I had ever sold them PPI and being disappointed when they couldn't make a claim when I told them no I hadn't!

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  • Steve Boucher - 07/03/2014 12:30

    Do you have to disclose how the interest on a stocking loan is reduced by the volume of finance passed to the lender? Do you have to disclose the finance subsidies the dealer contributes towards promotional finance rates, eg 0% APR?

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    • D Murphy - 07/03/2014 12:44

      @Steve Boucher - Good Questions - Why not ask the dealer how much profit he has in the car, and then why he is making £500 instead of £300 etc etc. It's a joke!

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  • G60Tim - 07/03/2014 12:55

    Does that count as 'remuneration'?

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  • Steve Boucher - 07/03/2014 13:28

    A reduction in stocking charges for giving fiancne business to a particular lender surely counts as a financial incentive - but how coud you quantify that, as it usualy requires a significant finance volume to reduce the charges, and the average individual customers finance balance wil only contribute towards the total target required. I imagine there will be no point talking to the FCA for guidance as I have always found them incredibly evasive when it comes to answering a direct question!

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    • G60Tim - 07/03/2014 13:49

      @Steve Boucher - Maybe will need an 'across the group average' for each month perhaps? Think the FCA wants to keep tabs on how lenders are incentivising the brokers too - another bit from the report: "A lender should only offer to or enter into with a firm a commission agreement providing for differential commission rates or providing for payments based on the volume and profitability of business where such payments are justified based on the extra work of the firm involved in that business."

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  • Max - 07/03/2014 14:18

    All good stuff, just reading some of the 'head in the sand' rubbish here, FCA enforcment teams will be rubbing their hands. (Well 6months after the 1st they will). When will this industry wake up to itself, embrace the rules, be transparent. Less time spent bleating, and more time thinking about your customers, within a regulatory world, might serve all better. Isn't 'an incentive' something to encourage you to behave in a particular way? Calculating such, proir to point of sale, will be difficult, and no doubt an accepted norm will appear, but if looks like a fudge, you can't blame the FCA coming after it.

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  • Steve Boucher - 07/03/2014 16:02

    Max, one of the biggest problems is when you speak to the FCA for clarification on any issue, they suggest you take professional/legal advice - as they are the creator and enforcer of the rules, is it not reasonable to expect clarity from them? It seems as though by being evasive with their guidance, they are ensuring dealers will fall foul of the regulations and justifying the need for the FCA. None of the finance houses we deal with are prepared to give any indication on what a compliant process will be. If you take treating customers fairly to the ultimate end, all of the finance companies will have to offer the same terms to every customer (therefore the dealer, removing competition from the marketplace. Will we see the end of business managers in the dealership? Will we see a situation where dealers stop offering POS finance?

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