Chris Sutton, managing director of Black Horse Motor Finance and current board member of the Finance and Leasing Association, said: “The introduction of the FCA regime for consumer credit is a significant change for dealers and lenders and it is natural that dealers may feel uncertain about the changes, particularly if they do not have previous experience of being regulated by the FCA.

“As with any regulation which has been written to cover a number of different types of credit industries, there are elements that require interpretation of what exactly does it mean for the motor finance industry.

“Ultimately, of course it is the dealer’s duty to seek out and understand their own responsibilities. However we are committed to supporting our dealers through any significant changes and we have provided them with the best information possible in good time so that the dealers are aware of what the rules mean for them operationally. In our experience, most dealers have recognised the need to respond and to improve standards, but there is no doubt that non-compliance will not be tolerated by the FCA.”

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.

Motor finance lenders shifting emphasis from profits to customer satisfaction

Some lenders are shifting focus from optimised sales volume and profits to customer satisfaction. BMW Group Financial Services has introduced a capped finance rate of 10.9% maximum at which dealers can sell its consumer credit. It expects this will impact on dealer profitability in the medium term, but the emphasis on the customer experience will drive up the volume of deals in the longer term.

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.

Nigel McMinn, Lookers’ managing director, confirmed that finance suppliers were looking at changing how they remunerated the dealer group to ensure compliance: “With finance agreements, we’re having discussions with finance providers that say they might change the way that we’re remunerated, so we’re not incentivised to push out for longer terms or higher balances or rates.”