Responding to the Financial Conduct Authority (“FCA”) Consultation on Motor Finance Discretionary Commission Models published 15th October 2019, MotoNovo Finance CEO Mark Standish noted:
“The FCA’s announcement on dealer finance points to fundamental changes in the commission model, with a dealer’s capacity to set customer interest rates to be banned. It’s exactly what we predicted back in March; where we thought that significant change was likely and now see this as a unique opportunity for the dealer sales and financing model to reinvent itself, making it both trusted by, and relevant to, today’s highly informed and protected car buyer. Rather than achieving used car finance penetration of as low as 20%, let’s use the opportunity to aim higher and ensure the dealer, both physically and digitally, is vital to the used car buying and financing journey.”
The FCA has confirmed its intention to remove dealer discretion to set customer interest rates as a way of increasing the commission they can earn. This is a significant shift from what has been a long-established model and will see the need for the sector to re-examine pricing strategies to ensure good customer outcomes are central to dealer’s cultural model and are delivered.
Following the FCA’s Final Findings report in March, Standish noted; “Addressing the issues (highlighted in the in the Final Findings report) can help create lower interest rates in dealer marketing and enable appropriate rate-for-risk pricing to be developed, vital when finance and car buying are so connected today and when increasing finance competition and online pricing transparency are prevalent.” The FCA’s consultation reflects strikingly similar conclusions to those Standish made in March, which is why Standish is so positive about the direction in which the FCA’s update points the industry, observing:
“There is no place for trying to side-step the FCA’s stated intention to address consumer harm and drive savings for customers and our response needs to be a bold one. Dealer finance has to reinvent itself and become accessible, transparent, affordable, fair and trusted by today’s car buyers. Removing dealers’ ability to set interest rates, which has come in for so much scrutiny, does this at a stroke. As an industry, we need to embrace positive change and move on confidently, building new partnerships with its customers.”
Since the FCA released its Motor Finance review in March, MotoNovo has made substantial investment in new financing models, technologies and dealer support, in anticipation of significant regulatory change. MotoNovo is well placed to support the changes that lie ahead.
Central to MotoNovo’s approach have been a move to embrace risk-based pricing, a development it believes the FCA will welcome. In Q4, MotoNovo will be increasing its pilot of risk-based pricing models across dealerships. Additionally, dealers and car buyers alike will be able to benefit from major new investment by MotoNovo in its unique dealer finance-led marketplace model findandfundmycar; a service that was conceived as a way of helping dealers to use finance in a compliant manner to promote car sales. Finally, additional development in customer self-serve finance access, an area in which MotoNovo is already the market leader, will assist dealers in developing an omni-channel car financing capability.
Standish concludes; “Used vehicle dealer finance can become far more important for dealers. To realise this ambition, the industry must re-boot. At the heart of our approach to support dealers in doing the right thing, we are already rolling out our Triple Win approach. This champions a financing philosophy that works for car buyers, dealers and ourselves. It is designed to drive used car finance up and place used car financing and sales together.
By delivering change effectively, dealers will be able to improve finance penetrations through a more customer focussed culture where lower customer interest rates are achievable. It is timed perfectly for the FCA announcement.”
The FCA is consulting on the new rules until 15 January 2020 and plans to publish final rules later in 2020. MotoNovo Finance plans to be active in working with the regulator.
Subject to the responses to consultation received by the FCA, they aim to finalise the rules at the beginning of Q2 2020. Firms would then have 3 months to implement the proposed ban on discretionary commission models. Proposed changes to some of the CONC commission disclosure rules and guidance would come into force on the day the rules are finalised.