“January 28th is a pivotal opportunity for motor finance to reinvent itself and create a new level of consumer trust and confidence in the dealer finance model. It is also a very significant opportunity to start making major in-roads into the used car finance market, increasing the share of wallet from the very modest levels we see today when compared to the new car finance sector.” This is the call to positive action CEO Mark Standish as the clock for change ticks down.

The prize of increased trust and confidence Mark sees is one that he believes can help dealers to increase the percentage of used vehicles they finance, which ranges from 20-40% penetration levels typically across the industry, recognising that new car finance penetration is well over 90%, according to FLA data. He also thinks it can help to support used car sales and head off the increasing threat from market disruptors, many of whom focus on the trust and confidence issue.

The key to positive change Mark is convinced lies in embracing the spirit and letter of the Financial Conduct Authority’s (FCA) Policy Statement and the link between the changes required and the FCA’s objectives;

“We aim to make financial markets work well so that consumers get a fair deal and to secure an  appropriate degree of protection for consumers.”

At the heart of creating positive change, Mark believes has to be the lending community in embracing the spirit and letter of regulation, in developing a finance approach that works for consumers, dealers and lenders as he notes;

“Since June, we have seen the positive impact of creating fair customer outcomes with our risk-based pricing model MotoRate. Customers have benefitted from an interest rate reflecting their credit status set by us, not our dealers and dealers have benefitted from higher finance volumes and trust, something we have measured very carefully through independent research. Finance volumes from over 2,000 dealers embracing MotoRate have grown over 70% new business year on year.

“Customers, dealers and MotoNovo have all benefitted demonstrating what can be achieved with an imaginative approach. I am aware that there is the potential option of flat-rate pricing models, but I have yet to be convinced these will deliver the same winning outcome for all parties I can also see the potential risks.”

In arriving at this conclusion, Mark points to extracts from the opening pages of the FCA Policy Statement:

  • We believe it is necessary to ban motor finance commission models that incentivise brokers to set customers a higher interest rate to earn more commission. Breaking the strong link between customer interest rate and broker earnings should reduce financing costs for consumers
  • We believe that banning discretionary commission models will lead to alternative remuneration models where lenders and brokers are incentivised to create and sell competitively priced loans. Lenders will have better control over the interest rate that consumers pay. This should mean that lenders originate more loans, and should be increasingly incentivised to offer competitive financing terms.
  • Ultimately, once motor finance firms move away from discretionary commission models, we expect to see consumers’ financing costs reduce.

Mark concludes;

“The FCA expects customers to get a fair deal, this is implicit in their core objectives and this, at least in part, they see as being achieved by financing costs reducing in motor finance; they have even put a £165M figure on this saving. I believe all lenders recognise the FCA’s aim and the challenge in doing so in a manner that supports dealers. We have shown this is possible and if the lending community recognises this path, we can change the market to the benefit of all of our stakeholders.”

“While seeing the ‘carrot’, I also recognise the ‘stick’ and everyone in dealer finance needs to realise this.”

FCA Policy Statement – Measuring Success

“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.”

Press release issued by MotoNovo Finance, November 2020

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