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FCA chief Andrew Bailey updates motor industry on affordability and commission risks

The Financial Conduct Authority expects to publish an update on its examination of motor finance next month.

Chief executive Andrew Bailey told guests of the Finance and Leasing Association annual dinner last night that the shift to PCPs in recent years recognises the nature of a car as an asset, and that there is a logic to consumers being more comfortable leasing or renting.

Of higher concern are high cost lending, such as sub-prime, and the difficulty some credit card users have in clearing debt in the long term, and the disproportionate fees charged for unauthorised overdrafts.

Yet in motor finance the FCA is “looking carefully at a number of possible conduct approaches by lenders,” he said.

These are:

  • Whether firms are taking the right steps to lend responsibly, to assess whether potential customers can afford a product;
  • Whether conflicts of interest arise from commission arrangements between lenders and car dealers;
  • Whether the information provided to potential customers by firms sufficiently clear and transparent, so that they can understand the risks involved and make informed decisions;
  • Whether firms are managing the risk that asset valuations could fall and ensuring that they are adequately pricing risk.

Bailey then talked more broadly about FCA activities. It is following up the publication of its ‘mission’ last year with work on the effectiveness of its major functions, including supervision, and will publish its approach to supervision next month.

He said: “We are focusing our work here more around business models and governance and firm culture as drivers of harm to our objectives.  We are moving to supervise firms as groups or portfolios with comparable business models.  The portfolios will not be static because we recognise that business models do change. 

“For each portfolio of firms, we will regularly agree the principal risks to consumers or markets that the group of firms presents, our programme of work to mitigate these risks, and the steps we will require firms to take.  We will maintain contact to ensure that firms understand our assessment and the actions we are seeking.  There will be a named supervisor for each portfolio, so you will have a named contact.

“We will be proportionate in our approach, and we will do this by assessing the potential risks to customers, the scale of likely possible harm and the potential vulnerability of those customers. 

“Finally, on the Consumer Credit Act, we are reviewing the appropriateness of the retained provisions, and whether they provide the sort of consumer protection we regard as appropriate today.  This is not really an issue about more or less protection, but about adapting older provisions for today’s world.”

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