PCP and PCH
People are starting to become concerned over the scale of motor finance, and need to be assured that everything is being done above board.
The question I’m pondering right now is if this is the case?
I sure hope so. What recent press articles are able to convey is that this industry is no longer hidden in the shadows. In many respects, it’s now quite the opposite, and may soon find itself under the spotlight. The FCA has revealed plans to review the industry. It’s far too early to know much about what they’ll find, but we already know a few of the things they will be looking for from their Business Plan.
One of these is commission structures, and I’m really hopeful that companies have their houses in order for this. The reason for this is simply that they’ve had plenty of time to prepare. I was at the F&I Conference in Leeds two years ago, and speakers there were already discussing what needs to be done.
We don’t know if the FCA will recommend full commission disclosure or not, though such a move has been widely predicted. What we do know is that the FCA will likely take a dim view of anyone paying dealers in a way which might encourage them to sell the customer an inappropriate finance deal, or just generally not look out in their best interest. We’ve had plenty of warning here, so there really can’t be any excuses.
We can also expect the FCA to look at topics including a potential lack of transparency, potential conflicts of interest and irresponsible lending. Again, these aren’t exactly new topics.
I’ve heard noises that some of the prime players have perhaps been lending slightly deeper into the credit spectrum, but there is a long way to go from that before you get to some of the worst horror stories we heard a few years ago, involving some of the payday lenders from before the FCA went after that industry.
One troubling story I have read (from the Telegraph) was of a mystery shopper claiming to have total a disposable income of £400 a month, who was recommended by a ‘car financing firm’ a £397 a month finance agreement in one case, and £372 in another.
The paper didn’t reveal who these firms were, or how far along the buying process the recommendations were made. It does admit, however, that the shopper still needed to pass a credit check, indicating they were fairly early in the car buying process, and probably speaking with a dealer or a broker.
This hypothesis is reinforced by the following sentence, made in the same article: “Salesmen are incentivised by commission and are under no obligation to perform any tests other than credit checks to test whether customers can afford car financing, although some firms do insist on extra tests.”
This sentence gives a second interesting perspective. According to the FCA, a ‘key element’ of assessing a customer’s creditworthiness is checking their ability to make the repayment, and is not a separate obligation.
In other words, although it is technically correct to say affordability comes under the banner of general credit checking, a thorough affordability check is still vital to credit checking, and one would assume the deals suggested to the shopper would have failed at this hurdle.
Regardless, it still brings up troubling points. The fact that sales staff are suggesting these deals at all to customers should be cause for concern. The fact mainstream media is already looking at commission structures before an FCA review should also be cause for concern, and the fact is there is a chance the shopper was speaking with a lender, which is perhaps most alarming of all.
In a post banking crisis, present FCA world, consumer finance firms need to be on their best behaviour and a few bad apple could damage the reputation of the whole industry. Don’t let that apple be yours.