The recent Financial Conduct Authority (FCA) announcement on motor finance is set to challenge the traditional commission model, but any changes will be positive for the industry, according to executives at motor finance broker Jigsaw Finance.
The FCA is seeking a higher level of transparency, which could lead to changes in the way commission payments are arranged and managed.
Mel White (pictured), Jigsaw Finance’s business development director, said: “We have multiple product options from a portfolio of lenders to match a product to a customer’s needs and importantly we have direct access to the customer to help establish these needs and affordability parameters. It is a role we take very seriously.”
She said that the business has no problem in preparing to adapt to any changes in the remuneration model because dealers and brokers are an important part of the finance distribution chain for lenders.
Jigsaw has already launched a new service called ‘Finance Assist’, which is a dedicated remote business manager service designed to help dealers and their customers to identify the best finance option.
White added: “Changes to the remuneration structure in motor finance will emerge and greater transparency on status and commission will be included.
“However, looking to other regulated financial services, we believe different distribution and
support fee options will develop to reflect the role of the broker/dealer in the financing process. We are ready to adapt to these to help more dealers and ensure they benefit from the benefits of finance to help sell more vehicles.”
Earlier this month, Asset Finance International reported that the UK’s auto finance industry could face major changes to the way it operates after the FCA reported “serious concerns” about the way in which lenders are choosing to reward car retailers and other credit brokers.
The FCA found that the widespread use of commission models, which allow brokers discretion to set the customer interest rate and thus earn higher commission, can lead to conflicts of interest.
It also claimed these are not controlled adequately by lenders and this can lead to customers paying significantly more for their motor finance.
The FCA is now looking at how it might intervene in the market to address the issues it has uncovered.
This could include strengthening existing FCA rules or other steps such as banning certain types of commission model or limiting broker discretion.
Jonathan Davidson, executive director of supervision – retail and authorisations at the FCA, said at the time of the report’s launch: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves.
“We estimate this could be costing consumers £300 million annually. This is unacceptable and we will act to address harm caused by this business model.
“We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”
Next month, the International Asset Finance Network will host a consumer and business auto finance regulatory forum. To reserve a place, complete the form below or visit www.iafnlegal.com.
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