In recent days lenders, brokers, and car retailers will all have taken time to review the latest FCA Motor Finance consultation paper issued on the 15th October, focusing on discretionary commission models and consumer credit commission disclosure.
There were no real surprises, other than perhaps the tone was stronger than before and a very clear call to action. It should perhaps be noted that in recent months several lenders have already modified their commission structure to remove the broker influence on the customer interest rate, but the latest paper now provides clear guidance as to what will be acceptable in the future. Equally the industry needs to ensure that customers are made aware that the broker or dealer-broker is receiving commission on their transaction, and that this point is clearly stated in any finance promotion. (The FCA survey suggested that less than 10% of brokers/dealer-brokers had disclosed that commission would be received – albeit from a very small sample of introducers.)
Over the coming weeks the industry has the opportunity to debate the full content of the consultation paper, with responses required by the 15th January. Our industry has faced many challenges and changes in the past, and has proved to be resilient by being able to have the capability of adopting new practices, adapting to conform, and improving processes. There is no doubt that there will have to be substantial changes to certain commission models, with the traditional DIC upwards arrangement confined to the waste bin. However, we at GrowCap are concerned that any changes provide sustainable compliance with all parties assessing the impact not only on their own company, but also on their business partners.
We obviously agree with providing consumers with good outcomes, with transactions being transparent and consistent. But the car retailers have to be allowed to continue to receive a fair reward for their involvement in providing finance to their customers, without this income many businesses will become unsustainable. Rarely, if ever, in the national media is the fact mentioned that car retailing already survives on a low ROI compared to other sectors. A CSI approach could become an integral part of future arrangements to compensate the potential loss of revenue from individual transactions. This would also be aligned with the ethos that the FSA desires.
It is also fair to say that the provision of car finance faces a number of other challenges, and therefore any additional impact on their financial return to comply with the FCA paper (from extra administration costs, reduced revenues etc) could potentially have an adverse impact on customer choice at point of sale.
There is much more detail to ponder, and we would be pleased to hear from car retailers and lenders wishing to discuss the consultation paper and to consider the impact of the forthcoming changes to their contractual arrangements and the potential impact on future trading. We are very keen to hear from you and to listen to your own views. In conjunction with Jo Davis, Partner at Locke Lord, it is our intention to prepare a response to the FCA consultation paper by the deadline of the 15th January. A consolidated response on behalf of car retailers and lenders should, we feel, have a meaningful impact. We very much look forward to hearing from any interested parties from car retailing and motor finance providers.
Please contact Peter Cottle, Head of Automotive Sector – email@example.com or mobile 07970 516305.