Dealers are likely to experience more intrusive relationships with their finance suppliers under stricter rules made by the Financial Conduct Authority (FCA) which could see them reducing the number of funding solutions they offer to customers, according to lawyer Russell Kelsall.
Kelsall will take to the stage at AM’s F&I Compliance Conference on 10 November at the National Motorcycle Museum in Solihull, West Midlands when he will explore the challenges dealers face operating in the FCA regulated environment.
Rule 1.2.2 in the Consumer Credit Sourcebook, known as CONC, states a firm must ensure that its employees and agents comply with CONC; and take reasonable steps to ensure that other persons acting on its behalf comply with CONC.
Kelsall said: “Effectively the rules are saying that finance providers could have some responsibility for dealers’ actions. In the past, finance providers would have allowed dealers to manage their own processes, but going forward, it is likely they will be much more intrusive.
“It’s at the embryonic stage at the moment, but it’s likely the FCA will expect evidence (the amount depends on whether the dealer is the finance provider’s agent) from finance providers to demonstrate dealers selling their products comply. From the dealer’s perspective, this could prove too burdensome and could see them reducing their number of financial suppliers from say five or six to two or three which is clearly not in the spirit of the FCA’s remit of consumer choice and treating customers fairly.
“I think it is one of these areas where an ideological position has been adopted by the regulator, but the consequences have not been properly thought through. From the finance providers’ point of view, being able to evidence, or to show they’ve taken reasonable steps, to the regulator that their dealers comply could be a high threshold to meet and could lead to a reduction in competitive products being offered to the consumer.
Kelsall believes as a result, closer working relationships, particularly between dealers and their captive finance providers, will develop with an obvious (but perhaps ideological) solution being one of the dealer’s suppliers undertaking the audit on behalf of them all. This would require a consensus of views on the best processes among lenders and Kelsall is doubtful this will be achieved, certainly not in the short term.
He added: “I think the industry as a whole will have to lobby the regulator to resolve the issue.”
In his session, Kelsall will also place commission under the microscope which will be an on-going challenge including disclosure and the question of whether dealers should also include the commission amount. He will also draw on recent PPI court claims where brokers have faced claims of selling to ‘vulnerable and unsophisticated’ customers. Kelsall believes the FCA is unlikely to differentiate between a broker and a dealer.