Industry leaders have provided their views on the recently published report by the UK’s Financial Conduct Authority which raised serious concerns about the motor finance industry.
The FCA is considering changes to the way in which commission models work following the publication of findings in its final report on the sector.
It found that the widespread use of commission, and in particular allowing brokers discretion to set the customer interest rate to earn higher payments, can lead to conflicts of interest.
It also claimed these are not controlled adequately by all lenders and this can lead to customers paying significantly more for their motor finance.
The report was welcomed by the British Vehicle Rental and Leasing Association, which urged the regulator to take a more active role in supervising lenders, retailers and brokers, stepping in with enforcement where required.
BVRLA chief executive Gerry Keaney (pictured) said: “The FCA has been working on this report for two years and has issued plenty of guidance and recommendations during that period.
“Over the same period, the BVRLA and its members have taken a close look at our own industry guidance and best practice, supporting these with a comprehensive training and inspection programme.
“The time for excuses has passed. There is no place in the motor finance sector for companies that are unwilling to embrace the FCA regime and actively demonstrate their compliance.”
Keaney added that the Difference in Charges model, which allows brokers discretion to set the customer interest rate, was an area where swift policy intervention was needed to tackle “blatantly unfair practice”.
Keaney added: “The BVRLA has more than 340 motor finance brokers in membership, who embrace our mandatory code of conduct and governance regime. We would like to see more lenders working with us to improve industry standards and processes.”
James Tew, CEO of motor finance technology provider iVendi, suggested that full disclosure of commission levels could be imminent in the industry and that business as usual was not an option.
He said: “Our reading of the review is that the FCA has actually developed a much better understanding of the industry than previously and that what it is saying about introducers, whether they be motor dealers or specialist credit brokers, is in many respects probably correct.
“This is very much a clear shot across the bows for motor finance companies and their approach to operational oversight of introducers. Better solutions and processes will need to be put in place.”
However, Neil Watkiss, head of consumer credit at DealTrak, said the research would inevitably be a positive catalyst for change.
“As the FCA made it clear that lenders are expected to review systems and controls in light of the report's findings, it is already extremely likely there will be changes in calculation of finance commission,” he said.
“[The] report will stimulate further evolutionary – possibly revolutionary – change to the DealTrak platform, and by extension to our industry. As a result, we welcome discussions with lenders, dealers and brokers to help them to shape that future.”
The findings come as the International Asset Finance Network plans to hold a major new conference for the auto and fleet finance industries to look at emerging legal and regulatory challenges.
The regulatory forum will be held on April 4 at London’s Hilton Canary Wharf and will feature leading industry speakers, with a focus on important new regulations that are a key source of concern for the industry.
Areas of focus include the Financial Conduct Authority’s investigation into motor finance and what it means for dealers and finance companies.
You can reserve a ticket for the Forum by completing the form below.