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Car dealers reminded of new FCA rules governing GAP sales in force from September 1

Dealer showroom finance

Dealers are being reminded of new regulations on the way guaranteed asset protection (GAP) insurance is sold to consumers is due to come into force on September 1.

Sue Robinson, National Franchised Dealers Association director said of the Financial Conduct Authority regulations: “It is important to note that any car sold with GAP that is delivered on or thereafter this date, and has been ordered prior to September 1, will be subject to the new rules.

“Dealers will be required to call customers in by Friday, August 28 and ensure they have the prescribed information about the GAP products they are being offered.”

If dealers have any questions or concerns ahead of these new rules, the NFDA hotline number is 01788 538 303.

NFDA guidance on prescribed information

Following recent FCA rule changes and the introduction of new remedies for the sale of GAP

there will be a need for dealers from September 1, 2015 to give customers specific

information about the GAP products they are offering.

This information is referred to as ‘prescribed information’ and must be given to the customer in advance of concluding the sale of any GAP insurance.

In addition this information must be given 4 days before concluding the sale (the provision of the prescribed information starts the clock running) unless the customer instigates the sale in which case the sale may be concluded the day after the prescribed information has been provided.

The prescribed information is detailed in the FCA ICOBS rules in section 6A.1.4 which come into force on September 1, 2015 and is as follows:

Ensuring the customer can make an informed decision

6A.1.4 (1) R

Before a GAP contract is concluded, a firm must give the customer the following information:

a) the total premium (1) of the GAP contract, separate from any other price (this would be

the total cost of the GAP premium to the customer. It does not need to include any

funding cost);

b) the significant features and benefits, significant and unusual exclusions or limitations

and cross-references to the relevant policy document provisions (should include any

feature of the policy that limited or excludes cover such as age and mileage of the

vehicle);

c) whether or not the GAP contract is sold in connection with vehicle finance, that GAP

contracts are sold by other distributors (need to state that the dealer is not the only

source of GAP);

d) the duration of the policy;

e) whether the GAP policy is optional or compulsory;

f) when the GAP contract can be concluded by the firm as described in ICOBS 6A.1.6R

and ICOBS 6A.1.7R; (ICOBS 6A.1.6R states a firm must give two clear days after providing the prescribed information before concluding a GAP contract.

This can be done by informing the customer of the actual date the contract can be concluded or by stating the number of days that need to elapse. ICOBS 6A.1.7R allows for the customer to initiate the sale of GAP and, as a result, allows a GAP contract to be sold the day after

the prescribed information is given.

It should also be remembered that the customer when initiating a sales needs to give consent and understands that they have done so.

Below is suggested wording for customer (with comments and example dates):-

‘This information is provided to you on (September 1, 2015). The first date on which we can conclude a GAP contract with you is (4 September 2015) (i.e. the date which is two clear days after the date information given).

If you wish, you can contact us before that date and we can conclude a GAP contract with you, at the earliest, on (2 September 2015) (i.e. the day after this information is provided) but only if: (a) you give consent to doing o and (b) you confirm that you understand that, unless you take the initiative to contact us to conclude the GAP contract after we have provided this information, and

consent to us doing so, we cannot conclude the GAP contract with you until (September 4, 2015) (i.e. the date which is two clear days after the date on which we provided this information) and

g) the date the information in (a) to (f) is provided to the customer.

(1) “Premium” is defined in the FCA Handbook as “the consideration payable under the contract by the policyholder to the insurance undertaking” i.e. the actual premium payable. The FCA say in PS15/13, page 21 that “the stated premium should be what the customer will be expected to pay once the deferral period has ended and if they chose to purchase the product”.

6A.1.4 (2) R

This information must be communicated in a clear and accurate manner and in writing or

another durable medium and made available and accessible to the customer.

(According to the FCA a ‘durable medium’ (2) is one that has ‘enduring effect,’ i.e. a customer has access to it in the future, e.g. CONC 4.4 states ‘… durable medium, for example on paper, as an email or as an attachment to an email. However it adds, it is insufficient to make available on a website or link to webpage).

6A.1.4 (3) R

This information must be drawn to the customer’s attention and must be clearly identifiable as key information that the customer should read.

It would not be sufficient to just include the information as part of pack and expect the customer to read it.

The dealer must actively draw the customer’s attention to it as part of the sales process.

In addition, a firm must consider if a long time elapses from giving the prescribed information and concluding the sale it would benefit the customer to receive the information again (6.A.1.8G).

The above rules are those specifically dealing with prescribed information, however there are further new rules that interact with these as follows:-

(2) “Durable medium” is defined in the FCA glossary as, broadly, (a) paper; or (b) any instrument which enables the recipient to store information addressed personally to him in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored.

In particular, durable medium covers floppy disks, CD-ROMs, DVDs and hard drives of personal computers on which electronic mail is stored, but it excludes Internet sites, unless such sites meet the criteria specified in the first sentence of this paragraph.

6A.1.6R

Except as specified in ICOBS 6A.1.7.R, a GAP contract cannot be concluded by a firm until at least 2 days have passed since the firm complied with ICOBS 6A.1.4R.

This rule determines that the GAP contract cannot be concluded until 2 days have elapsed since the prescribed information has been given.

6A.1.7R

A firm can conclude a GAP contract the day after providing the information in ICOBS

6A.1.4R to a customer if the customer

1. initiates the conclusion of the GAP contract; and

2. consents to the firm concluding the GAP contract earlier than provided for in

ICOBS 6A.1.6R and confirms that they understand the restriction in ICOBS

6A.1.6R

The rule allows for customers to initiate the concluding of a GAP sales early but that the customers must confirm they wish to do so.

To ensure that this confirmation is received it recommended that a process is in place to document this for future evidencing.

Dealer sales process

Dealers will need to include in their sales processes the above ‘Prescribed Information’ requirements.

The information will need to be given in a durable medium such as in writing or on an email and the dealer will need to be able to evidence that this has been done and when.

The way the information is given may need to vary depending on how you interact with the customer.

Customers who make contact by entering the showroom and subsequently make their purchase in the dealership are most likely to receive information in writing during their visit.

Customers who make contact through the internet or by email may be better served by receiving the information in an email. In all cases the information must be given 4 days (2 clear days) before a GAP insurance is sold to the customer.

Customers may initiate a GAP sales before the end of the four day period.

This is most likely to be customers who are familiar with the product and perhaps have bought GAP with previous vehicles.

If this happens a dealer will need to be able to demonstrate, in case of future audit, that a customer has made an active decision to buy.

A dealer will need to decide where best to include new information requirements in their sales process.

Before giving the ‘prescribed information’ the dealer will need to be able to determine the price of the GAP insurance.

If this is a fixed price for all then it may be possible to give the prescribed information before the customer orders a car.

However, if the price is variable, as it is dependent on the vehicle price, then the information may only be given once the vehicle has been chosen and fully costed.

In these circumstances the dealer will need to decide if he takes the order at this point without the GAP, revisiting the GAP sale 4 days later or perhaps at point of delivery.

All GAP sales from September 1 will be subjected to the new rules. This includes instances where a vehicle has been ordered with GAP prior to September 1.

In practice this will mean that customers with forward orders for September 1 will need to be supplied with prescribed information sometime in August and at least four days before delivery.

> Helpline: For further information please contact the NFDA on 01788 538303.

> Download the NFDA guidance on prescribed information requirements (pdf)

 



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