No room for ‘body-swerves or gamification’ in new FCA motor finance rules

The motor finance sector must reinvent itself in light of the Financial Conduct Authority’s (FCA) new regulations which will ban all discretionary commission models from January 28.

MotoNovo Finance’s deputy chief executive, Karl Werner, has asserted that lenders and dealers have a duty of care to honour the spirit and letter of the FCA Policy Statement to protect car buyers and the broader dealer finance industry and said that there can be no “body-swerves or gamification” of new legislative responsibilities along the way.

FCA confirmed its ban on all discretionary commission back in July, claiming that the move would save car buyers £165 million-per-year and eliminate “conflicts of interest” in the sector.

The move followed consultation in October last year which was expected to result in a final decision in Q2, before the COVID-19 coronavirus held-up the FCA’s decision-making process.

In its findings the FCA said that any new motor finance commission models must avoid anything that looks like a discretionary commission arrangement, a definition that the regulator noted: “Should be interpreted broadly.”

And Werner has warned that there is no room for complacency. He said: “The dealer finance model needs to be reinvented to meet the FCA’s requirements in full.

“There is no place for body-swerves or gamification that might replicate any part of the soon-to-be banned dealer discretion.

“Such a move would only serve to damage the reputation of dealer finance and encourage damaging claims management company activity.”

In a ‘guest opinion’ blog published by AM last month Spencer Halil, director, Alphera Financial services, said that lenders and car dealers must act now to begin adapting to the FCA’s changes.

Outlining the early staeps that should be implemented sooner rather than later, Halil said that there was “plenty we can do to begin implementing necessary changes”.

James Tew, iVendi chief executive, warned that the FCA’s changes potentially created a number of danger areas when it comes to online systems, meanwhile, as he highlighted four main points of potential weakness within the digital motor retail environment which urgently needed addressing.

Werner believes that the new FCA regulations may also present an opportunity for the sector, however.

He said: “The changes required are an opportunity to demonstrate to the broad public the industry’s commitment to business cultures centred upon doing the right thing for customers.

“This principle is also an integral part of the FCA’s SM&CR responsibilities for senior leaders in dealerships and lenders.

“How we react to the test of embracing, not just the letter, but spirit of the FCA’s Policy Statement stands to have a big part in the future of dealer finance.”

MotoNovo claims to have moved towards the FCA’s car finance ideal scenario with the launch of its new “priced to risk” MotoRate offering and Werner said that the business sees a significant opportunity to increase customer trust, finance penetration and income for many dealers.

“(Our) experience over the last three months is that not only has MotoRate taken the traditional friction out of dealer finance, but it has also encouraged dealers to talk openly and positively about another FCA priority, commission disclosure,” he said.

“De-mystifying finance and trust-building have to be positives for the future of dealer finance.

“I am open to debate on alternative models, but every alternative must put every customers’ best interests at the forefront of the discussion.”


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