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Use the ‘family test’ to ensure FCA compliance

Andrew Smith, FCA compliance expert

Applying the ‘friends and family’ test could be a simple indicator of how seriously a dealership is applying the Financial Conduct Authority’s principle of “treating customers fairly”.

That advice came from Andrew Smith, managing director at Consumer Credit Advisory Services (CCAS), during a recent meeting of the AM F&I Executive Club.

CCAS has a director who sits on the FCA’s Skilled Persons panel, which means it understands the inner workings of the organisation, Smith said.

“One sentence that came up in these discussions, was: ‘Would you be happy if you or one of your family members had been through the sales process that your business presents, and have they got the product they wanted at a fair price?’. That, in a nutshell, was the panel’s definition of treating customers fairly.”

Smith’s advice in treating customers fairly was to look at the customer, map out their journey from origination to the conclusion, and examine each touchpoint by applying that test.

He spoke about the six customer outcomes the FCA wants firms to strive to achieve, and what this means in practice.


Six ways to ‘treat customers fairly’

■ Outcome 1: Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.

■ Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

■ Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

■ Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

■ Outcome 5: Consumers are provided with products that perform as firms have led them to expect. The associated service is of an acceptable standard and as they have been led to expect.

■ Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

His advice was that the customer is made aware of any limitations in the scope of the service the dealership provides, it trains its staff regularly and specifically to the F&I role, and documents that training and increased awareness.

“It is all about the evidence. You can sit in front of the regulator and say ‘look at our wonderful sales process, we treat our customers fairly, cut us through like a stick of rock and inside it says TCF’ and their response to that will be ‘that’s great, prove it’. If you can’t evidence it, as far as they’re concerned it doesn’t happen,” Smith said.

The sales process must be designed to clearly identify the needs of the customer and ensure the provision offered is appropriate, and the process is documented.

Customers must be provided with clear information. Ensure any quotation or illustration given out has the relevant prescribed information and is laid out in a way that is clear and easy to understand. Smith said claims management companies have been successful because it is all about the detail in the process and they’ve been able to find holes.

A good test is to give a documented sales process file to someone who doesn’t know the process, and to ask them for feedback on whether they understand what has happened to lead to that sale and why.

If it is a non-advised sale, show that the customer is given every available option, so that they can confirm they have made an informed choice and had all the right information to make their decision, he said.

If you’re quoting for a particular product, make sure that is the one the customer gets.


Deal with complaints correctly

Complaints are an important element of the process. If a customer wants to make a complaint, the dealership must ensure the customer knows how to, the complaints process is robust and it follows Financial Ombudsman Service guidelines and timings.

CCAS advises firms to record every single complaint that comes in, whether related to the business’s activity or that of any third parties. This could enable the firm to show the FCA that only a tiny percentage of complaints relate to its activities, and that it does have customer service at its centre because it takes time to log every expression of dissatisfaction that comes in, whether justified or not, and takes ownership and when necessary passes it on to the relevant party.

Smith warned that the FCA’s thematic review into remuneration is likely to be published in Q2 2016. His advice was that dealers must provide evidence that commission and pay schemes are driving staff to do right by the customer and are not based around their own self-interest.

CCAS has worked with firms that have a training and competency scheme where bonus is spread across quality assurance, complaints numbers, quality of paperwork, customer feedback as well as sales.

Smith said the FCA has no problem with people being rewarded for their productivity, but it needs to be done in the right way. For example, staff earning a percentage linked to the size of the amount being lent may lead them to focus on certain deals, which could raise concerns.

Steve Freeman, MHA MacIntyre Hudson, said his conversations with motor retail finance directors have revealed their number one concern at the moment is FCA compliance processes and controls.

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