This is the second in our series designed to help motor dealers to understand the Financial Conduct Authority’s (FCA) motor finance review findings, which will not only shape the future landscape for dealer finance, but also and very importantly may require dealers to make changes to the way they work now.
Focus upon Transparency
The FCA was very clear that when it came to the supply of information to customers to help them make an informed financing choice, all too often their experience in mystery shopping exercises fell short of the standard they had hoped to see. Their concluding comment was that the information was all too often; not sufficient, timely or transparent.
Regulated firms need to adhere to the FCA’s Principles for Business, or PRIN. There are 11 fundamental principles that firms must follow and you can find details of these on the FCA website by clicking here, or there are also details in this useful FCA Guide for Consumer Credit Firm.
Of key relevance to all regulated firms is Principle 6 – ‘Customers’ interests – A firm must pay due regard to the interests of its customers and treat them fairly. This is commonly referenced as the FCA’s ‘treating customers fairly’ principle.
This principle sits behind many of the FCA’s detailed rules including six consumer outcomes that firms must strive to achieve. These outcomes have been in place from many years, but are worth noting:
Outcome 1: Consumers can be confident that 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, and 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.
Addressing the FCA’s Transparency Concerns
Transparency in delivering the outcomes listed above is a critical aspect of the service delivered by dealers in the promotion and processing of motor finance agreements. This need for transparency is an area where dealers risk falling short.
To address the potential transparency shortfall, dealers would do well to review the FCA’s comments in their Final Findings report and consider if their current approach would fall short of the standards required. If so, or if there is any doubt, now could be the time for dealers to redesign their processes and embed sustainable change through training. Here are the FCA’s comments:
- “Our mystery shopping results raised a number of concerns in relation to pre-contractual disclosure and explanations, and we are not satisfied that firms are complying with regulatory requirements.
- While it is possible that disclosures may have been made later in the process (not covered in our mystery shopping exercise), it is unclear whether this would be in good time before entry into an agreement, to enable the customer to make an informed decision.
- Where disclosures or explanations were given, these were not always complete, clear or easy to understand. As a result, customers may not be given sufficient information and explanation to enable informed decisions.
- We have particular concerns in relation to disclosure of commission, especially in respect of DiC and similar commission models where the broker has discretion to adjust the interest rate. There are existing requirements in our Consumer Credit sourcebook (CONC) on disclosure of brokers’ status and remuneration, but we did not see clear evidence of compliance with these.
- In particular, brokers must disclose the existence of any commission or other financial arrangement with a lender which could affect the broker’s impartiality in promoting a particular product or impact on the customer’s decision-making. Such disclosure should be clear and readily comprehensible. In addition, the broker must disclose the amount (or likely amount) upon request.”