September will see the FCA commence their planned assessment of the success of the new rules implemented in January. I am optimistic but not complacent that many of the dealers with whom we work with at MotoNovo using our MotoRate pricing model can look forward to the review positively. Nevertheless, we continue to work alongside them to ensure they are aware of their compliance responsibilities.
How the FCA plans to measure success
Rather than paraphrase, here are their exact words;
- We will look closely at any attempt by a motor finance firm to introduce a commission model that could lead to the same harm that we have sought to ban.
- We will monitor how well firms comply with the ban on discretionary commission models by carrying out supervisory work across a sample of firms. This work will start in September 2021. It will include looking at what commission models firms are using as an alternative to discretionary commission arrangements and the ranges of interest rates and commission earnings. This information should help us assess whether the potential for customer harm remains and, if so, how we address it.
- We will also carry out a point-of-sale mystery shop exercise to measure lenders’ control over dealer networks. This work will assess whether firms, where they are required to, have taken appropriate steps to ensure dealers/brokers comply with relevant regulatory requirements.
Adhering with the rules
I was disappointed to read an article recently from a supplier of legal services regarding the FCA’s planned work with a series of suggestions designed, it appeared, to pit dealers against lenders. Disappointingly, it also included potentially misleading suggestions about the scope of responsibilities dealers have for dealer compliance with FCA rules.
Seeking to force a wedge between lenders and dealers isn’t something I see as helpful; we are so much better off when we work together. Both lenders and dealers have responsibilities for FCA compliance. It is essential to reflect that while we are happy to help and we, like other lenders, have a dealer oversight team working collaboratively with dealers to support and signpost them to best practices in offering finance.
Nevertheless, the ultimate responsibility for a dealer’s finance approach rests with the person in every dealer business with Senior Managers Certification Regime (SMCR) accountability; this cannot be delegated to a lender. Areas including the selection of commission model, operating processes and controls and finance marketing all rest with the dealer. Added to these is something that is becoming increasingly important in FCA compliance, a business’ culture. The FCA expects organisations to comply with the spirit and letter or their regulations. It is a crucial area that dealers must consider in their business model as we do in ours.
Seeing change as a positive
A critical change that MotoNovo has created to support dealers is our multi-award winning risk-based pricing model – MotoRate. Embraced widely by our dealers, it is providing performance and compliance gains.
While I understand the reasons for fixed-rate pricing, I’m struck by the impact of our MotoRate risk-based pricing on dealer finance. In the spirit of absolute transparency, here is some recent data that evidences the effect of MotoRate;
- Pure MotoRate agreement acceptance rate for June was 60% vs 51% non MotoRate agreements
- Pure MotoRate dealers have seen a 61% growth in the year to date A1 payouts YOY, whereas non-MotoRate dealers have seen only seen a marginal increase of 7%
- A1 (highly creditworthy customer) proposals are up 29% year to date
With MotoRate, acceptances are increasing; penetration is rising, the promotional potential is having a positive impact on the creation of car sales and income is being sustained courtesy of revenue gained from a broader audience.
So as we look to the FCA assessment of its new rules, I can say confidently that we are a business partner focused upon collaborating for long-term success. We understand that helping our dealers to succeed with finance in a compliant manner is good for both our businesses and are always ready to help.
Jon Slater, Chief Strategy & Marketing Officer