While COVID-19 has seen the Financial Conduct Authority (FCA) delay the implementation of new rules for motor finance that were scheduled for Q2; changes can be expected now that lock-down measures are easing. To quote the FCA we can anticipate; “a ban on commission models that give motor finance brokers/dealers an incentive to raise customers’ interest rates and changes to some of the FCA’s rules and guidance to ensure that many types of credit broker give consumers more relevant information about commission.”

While it is generally acknowledged that customers will benefit from the changes indicated by the FCA and that new commission models will remove the current conflict of interest that exists, there has been little mention of credible alternatives or suggestions of new models.

The FCA review has presented lenders and dealers with a unique opportunity to not only change the way that dealers are remunerated for finance sales, but to transform the customer experience completely. 

Enter MotoRate from MotoNovo Finance. MotoRate offers greater access to car finance for everyone at a fair rate that reflects their credit status. It represents a fresh, new, ethical route to car finance that will benefit customers through increased transparency. Additionally, it will help dealers achieve higher finance penetrations resulting in point-of-sale motor finance becoming a mainstream product. Risk based pricing models could see increasing demand for their products. 

MotoRate takes the hassle out of car buying as a customer will know that their interest rate will be set independent of the dealer, based only on their credit history, building trust with consumers and creating a fair customer journey.

From a regulatory perspective, MotoRate ticks all the boxes. It completely removes any dealer discretion in setting the customer interest rates. The rate the customer receives is personalised as it is based on their individual circumstances, creating better outcomes than alternative models, such as a single rate offering to all customers.

One of the outcomes expected following the FCA’s Consultation Paper was an annual £165M interest rate saving for car finance customers. Inevitably, without positive change, this provides the risk of a reduction in dealer earnings from the promotion of finance products. A move to the MotoRate risk-based pricing approach can see dealers convert significantly more finance agreements through point-of-sale motor finance than before; something we have seen in our extensive pilot testing. The resulting switch to MotoRate could actually increase earnings compared to previous levels.

The FCA review represents a unique opportunity for lenders and dealers to partner together to respect customers and transform their experience, growing and creating a sustainable point-of-sale motor finance market for the benefit of customers, dealers  and lenders. 

I recognise that some dealers may like the idea of a single rate model for ease of implementation. My observation is that this ease could be counterbalanced by the risk of  losing business to other dealers embracing a more personalised customer finance journey and outcome. Additionally, they could continue to lose prospective clients to the personal loans market that offer a better interest rate. I’m convinced that the merits of a bold, courageous step-change offers a better solution.

Stephan Bothma

Chief Risk Officer

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