With a press release titled; 'FCA to introduce new Consumer Duty to drive a fundamental shift in industry mindset' issued on December 7th, the Financial Conduct Authority made it very clear that it is expecting significant change to ensure financial credit markets work well for borrowers as it gears up for the introduction of the new Consumer Duty.
With the FCA noting that; 'We would generally expect firms with a direct relationship with the end-user to have the greatest responsibility under the Consumer Duty;' dealers need to consider how well their existing model embraces the outcomes sought by the FCA. These are the governance of products and services, price and value, consumer understanding and consumer support.
Over almost 200 pages, the FCA plan, which is subject to consultation until February 15th 2022, outlines the background of its expectations and draft handbook guidance for new rules, which are expected to be finalised by the end of July 2022.
For dealers, their board or equivalent management bodies will be responsible for assessing whether it places consumers' interests at the heart of their activities to deliver the type of good customer outcomes the regulator expects. For this reason alone, we can expect to see much more about the new Consumer Duty in the months ahead. Once again, when facing regulatory change, dealers can rely upon MotoNovo to be taking the lead in supporting them.
The challenge of change always presents opportunities. Overall, embracing consumer credit regulation has been a positive force for dealer finance. The picture over recent years has been one of improving performances, a more significant role for finance in marketing and pricing and crucially enhanced consumer confidence.
The proposed Consumer Duty focuses squarely on ensuring consumer credit providers, including dealer finance, place each customer's interests at the heart of the experience, products, and pricing, rather than the business'. The attention to delivering good customer outcomes is not new. When the Consumer Duty was first announced last May while recognising that ‘many firms that are already delivering the right outcomes for consumers – good products and services at fair prices,’ they also noted that;
‘We also encounter too many firms that are not adequately considering the needs of their customers and prioritising good consumer outcomes as an objective of their business activities. We continue to see practices that cause consumer harm.’
Creating good outcomes for customers at an individual level was why we pursued the development of our risk-based pricing model and its tailored approach. Standing largely alone in taking the lead with risk-based pricing was centred upon embracing the FCA to place customer need at the heart of finance. We continue to provide flat-rate pricing models, but in light of the FCA's work, it feels appropriate to share our findings from MotoRate.
It is improving dealers' finance penetration, and consumers' feedback continues to be exceptionally good.
Adopting risk-based pricing does require- some different thinking by dealers and I believe that is what the regulator's press release suggests they are seeking. I welcome the opportunities to discuss our learnings from this innovation with dealers as the Consumer Duty changes approach.
Press release issued by MotoNovo Finance, January 2022