Dealers risk ‘horrendous’ non-compliance penalties from FCA

By
|
1 July 2015

FCA regulation was a hot topic at the inaugural meeting of the AM F&I Executive Club. BDO head of automotive Malcolm Thixton said if the threat of fines, winding-up orders or jail doesn’t make dealership directors take the FCA regulations seriously, he doesn’t know what will.

“The implications of FCA non-compliance are horrendous,” he added. “Make sure your processes are consistent across all your sites, franchises and people.”

Dealers must budget for the cost and time required to deal with the FCA, to employ and train the right people, and to demonstrate compliance. Complaints monitoring and record-keeping are crucial parts of Treating Customers Fairly (TCF).

Thixton gave two case studies showing how dealers are approaching compliance differently. One, a £300 million premium brand group with full authorisation, still uses a manual process for compliance audits because it finds the motor industry does not make it easy to integrate different pieces of software.

‘Finance is a ticking time bomb’

The group’s F&I director told Thixton finance is a ticking time-bomb and said he had already fielded calls from claims management firms and consumers claiming they were never told about the balloon payment on their PCP or the excess mileage charges.

One site claimed it now takes 26 signatures to complete the sale and deliver the car. It no longer incentivises high-rate deals, but its captive finance partners are taking different approaches – one has moved from volume bonus to fixed commission, and the others still pay for volume.

The second dealer, a £500m group with various franchises, is fully authorised, but wants to revert to an authorised representative (AR). It uses Autoprotect for compliance monitoring, and the F&I head likes its consistency and web-based approach. It has moved away from ‘cliff edge’ commission to fixed and rewards business managers on penetration, but with more of a balanced scorecard approach.

Its captive finance providers are also taking differing approaches, some fixing rates and others continuing with variable rates. Overall, this dealer expects customer satisfaction to improve as a result of consumers feeling they are getting a fair deal.

Commission disclosure is a concern for dealerships. Currently, dealers must disclose it if a customer asks. However, Thixton said if disclosure became the norm it would not be a problem, because every dealer’s commission would be in the open.

Dealers may see their absolute commission from finance go down but penetration may increase, said Thixton.

He said FCA regulation is affecting companies that audit motor retailers, such as BDO, which has to have an FCA specialist in its audit team. In addition, its letter of engagement now informs fully authorised clients that it must act as a “whistle-blower” to the FCA if it finds any issues.

Dealers see F&I as the next target for claims farmers

Delegates felt customers hadn’t seen point-of-sale F&I as a problem prior to the FCA’s engagement. Measurement of CSI surveys suggests dealers “are doing a pretty good job”, said one. They also worry about boring the customer with reams of paperwork. However, many see F&I as becoming the next target for claims farmers.

Providing the deal files have been completed properly, dealers feel able to fight such cases, and many have already done so through the Financial Ombudsman Service. However, if sales executives have not filed full records, the dealership may have to simply pay up. Every case sent to FOS costs the business £550, even if the dealership wins.

One dealer suggested recommending a finance product is too risky. Instead, presenting a selection that may suit a particular customer reduces the risk of miss-selling, he said. However, this can be complicated by a carmaker insisting the dealer uses its finance as part of its franchise standards.

Comments (6)

Login to comment

Comments

Paul James - 01/07/2015 13:21

If dealers move from a profitvperspsctivecto a servicecperspective the change of approach and attitude at the point of contact moves to a different level. Remove the profit objective install the servicecperspective transcends all points of the compass.
- 0
- 0
alext - 01/07/2015 17:01

I find this item quite perplexing. On the one hand it seems to raise issues of doom when the subject of the doom has been known for at least 2 years. Regulation of financial services began in the mid 1980s - 30 years ago. General Insurance regulation began 10 years ago so the "finance" part of F&I is the LAST part of financial dealings to come into scrutiny. The perplexing bit is the apparent hostility expressed towards the regulatory process. The comparison between the 2 firms does not square up. There is nothing wrong with a manual process if that it was does the correct job for compliance purposes. The £500 M group wants to be an Appointed Representative of AutoProtect. This is of no help to the firm for Consumer Credit compliance as AutoProtect is not authorised to act as a Principal for finance - at least not according to the Financial Services Register 5 minutes ago. Yes , commission disclosure is a concern - if you have anything to hide! However, every other part of financial services has had to convert to this disclosure - most recently IFA firms most of whom now work on a fee basis not commission. It's the transparency thing! I object strongly to the use of the dramatic headline - it is not a time bomb by any stretch of the imagination. I say this from my 10 years of practical experience as a compliance consultant ONLY to the motor retail trade. I have guided them through 10 years of GI compliance and implementing new rules for consumer credit is merely an addition to existing processes based on the new rules. These clients take a professional and responsible attitude after due guidance and approach the challenges positively and cheerfully.......or am I just lucky with having good clients. If reported correctly, Mr Thixton does an injustice to thousands of successful motor firms out here!
- 6
- 0
Independent dealer group - 02/07/2015 02:45

Why oh why would any firm want to be directly authorised ? Regardless of size, the smaller dealers do not have the specialist staff rehired and the lever dealers carry higher risk and larger potential penalties. However this article seems to imply that Auto Protect can appoint an AR for consumer credit this is not the case, there is only one firm with authorisation for both General Insurance products and Consumer Credit authorisation specifically for the retail motor industry according to the FCA register and that is Automotive Compliance.
- 0
- 0
Louis Brain - 02/07/2015 04:39

This is quite misleading, from a consultancy without any of their own FCA authorisation I note, Who thinks that advising a £500M dealer group to become an Apppinted Representative of a company with only authorisation for General insurance products now tied to only sell one providers products and loosing the ability to negotiate or explore other providers who may provide similar or potentally better cover for thier customers is hardly good for the business, neither is it treating customers fairly. The article is also missing the bigger picture, what is this dealer doing about their CC compliance as this is only half the story, presumably this dealer is directly Authorised for consumer credit as Auto Protect can not offer this ? Shows little understanding of what a dealer actually needs to forfill their FCA responsibility and using the usual scare tactics.
- 0
- 0
AutoProtect - 02/07/2015 17:13

Compliance with the developing regulatory landscape is something that is a concern to many dealers. At AutoProtect, we embrace a strong commitment to compliance. Working with our colleagues at our i-Comply Online business, we believe that a tailored one-to-one approach to F & I compliance with each dealer works effectively to deliver the principle based standards required. We recognise that whilst regulation is a key driver of change, it is the changing consumer and their buying processes that must also be fulfilled in a new way. As well as helping dealers to establish high integrity processes and controls, which deliver a transparent and commercial service to their customers, we work to help dealers deal with the ever changing digital landscape and encourage them to widen their product portfolio and meet the diverse range of consumers requirements. AutoProtect is well recognised for providing dealers with Appointed Representative (AR) status for our range of general insurance services. Whilst what AlexT says is true, that we do not provide AR status for consumer credit, AutoProtect is seeing dealers switching from being fully authorised to AR with us because it can help them in their Consumer Credit regulatory planning and in managing the more complex Consumer Credit requirements. Dealers, that are ARs for general insurance can apply for the Limited Permission regime for consumer credit. This status, which is designed for organisations where consumer credit is a secondary activity, is less onerous and less expensive than full authorisation and as such will appeal to some dealers and dealer groups as a more attractive option. In addition to our support for general insurance, our partners at i-Comply Online provide total compliance support for dealers across their F & I activities. From authorisation to ongoing process and reporting assistance our consultancy team provides a reassuring, support approach at every step enabling our dealers to feel confident that their compliance program meets FCA requirements and also benefits their business.
- 4
- 0
max - 08/07/2015 17:02

This just goes to demonstrate how 'dealer world' and certain 'consultants' really do not understand the permssions framework.TCF has rather moved on to 'conduct risk - just in case any parties missed the shift!
- 0
- 0