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Dealers' F&I commission will come under scrutiny 'quicker than we think'

FCA scrutiny of car dealers' commission on F&I products will happen “quicker than we think”, according to Barclays Partner Finance managing director Mike Britton.

Speaking in response to questions from the floor at yesterday’s Dealtrak F&I Conference at the Royal Armouries, Leeds, Britton warned dealers that the FCA would move to investigate high commission rates within the automotive industry.

Britton said: "It is going to happen and I think it will happen quicker than we think.”

Matt Dyer, chief executive at ITC Compliance, said that the FCA had had its chance to question the levels of commission taken out of dealers’ F&I sales and had chosen to pursue greater transparency of insurance claim rates rather than control prices.

Dyer said that he felt dealers making £3,000 to £4,000 on finance deals and selling three-year GAP policies costing the customer £499, but between £80 and £120 in real terms, “make too much” from the F&I side of the industry, but added: “Ultimately, we have to remember that dealers invest in staffing and millions of pounds in their showroom facilities. You cannot compare their operation to that of an online finance or insurance provider.”

Mike Macaulay, corporate business development manager at Autoprotect and also part of the F&I Conference’s panel of experts, was hopeful that the FCA would not pay too much scrutiny to commissions. He said: “Can we not slip under the radar? I think as long as the commission is sensible we should be OK.

“Will the FCA step-in and control the prices? Probably not.”

Dyer said that dealers had as much to worry about the Financial Services Ombudsman than the FCA and questioned how many dealers are currently meeting the standards expected by both.

He said that the immediate impact of a £500 bill to challenge or defend a complaint via the FSO was, to many, more of a threat than the prospect of an FCA investigation.

But he said that close partnerships between compliance specialists, F&I providers and dealers would hold the key to operating within the rules in the eyes of the authorities.

He said that F&I sales, and products like PCP, would remain central to dealers’ operations for some years to come.

Dyer said: “I think dealers make too much out of F&I at the money but I don’t see why products like PCP won’t be around in eight, nine or ten years’ time.

“What needs to be put in place are systems and measures to ensure that dealers are doing the right thing to meet the current regulations.

“We ask dealers what measures they have in place for their F&I sales and they will say that they sit down at the end of each month and look at their penetration levels and their profits.

“What they need to be doing is looking more closely at how those products are sold. Do that and they might find that their best F&I salesman may not be their biggest asset, he might not be selling in a way that meets the regulations.”

Dyer said that F&I providers have a duty to ensure their partners are operating within the FCA’s rules.

He added: “Finance and insurance companies are sending questionnaires to all their dealers and at some point they will get that documentation back and find out just how good or bad things really are out there.”

Earlier this week a House of Lords committee on financial exclusion was told that FCA rules regarding customer fairness were too vague, and practically unenforceable as a result.

Motor Finance Online reported that The House of Lords Committee on Financial Exclusion met on Tuesday to investigate fairness to customers and access to finance for low-income individuals.

Sue Lewis, chair of the Financial Services Consumer Panel, told the committee that ‘treating customers fairly’ amounted to “principles not rules”, and were too vague to be enforceable.

Damon Gibbons, director at the Centre for Responsible Credit, also argued that rules on consumer affordability were unclear.

He said: “On affordability we have a real dog’s dinner. I don’t think that the industry is very clear on what affordability rules mean…I would hope that we get to something much more structural.”

ITC Compliance this week announced a partnership with DealTrak, formerly Frontline Solutions, to offer its 1,000-plus clients FCA compliance via “Appointed Representative” status.

DealTrak is relaunching its online F&I platform and moving to Leeds City Centre as part of growth plans which coincide with the new partnership.

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