FCA Probe Into Motor Trade Finance Models Not Over Yet

Dealers who provide finance for buyers are being reminded that the Financial Conduct Authority hasn’t turned its back on the motor trade. Every business in the used car sector needs to realise that it could be mystery shopped at any time and should be able to prove that its systems are robust, accurate and legal.

Accountancy firm, UHY Hacker Young, which operates widely among dealers, warns that second-hand vehicle retailers may need to up their game every bit as much as the big franchise groups. Some of whom are now reviewing their finance practices in the wake of FCA investigations.

At the heart of the matter are the commission models such as the Difference in Charges, where brokers have the discretion to set the customer interest rate and the higher that is, the more commission they earn. However, UHY says this can easily lead to a conflict of interest with the customer paying more than they need. The FCA estimates that such commission models could be costing customers £300 million more annually than under flat-fee models.

Dealers are also being reminded that they have a duty to give all the facts, contract details and affordability assessments before the buyer signs anything.

Potentially impacted by the FCA’s review

James Astley, of UHY’s automotive specialist team, said:

“As part of its work, the FCA carried out mystery shopping of firms. The FCA found that where disclosures were given, these were not always complete, clear or easy to understand. As a result customers may not be given enough information to enable informed decisions. They were also not satisfied that all lenders were complying with the rules on assessing credit worthiness including affordability.

“All firms acting as lenders or brokers in the motor finance sector are potentially impacted by the FCA’s review. The FCA have said that they expect all firms, both lenders and brokers, to review their policies, procedures and controls to ensure they are complying with all relevant regulatory requirements and to ensure they are treating customers fairly.

“Firms will need to ensure their pre-contract disclosure and explanations are in line with FCA expectations and their affordability assessment arrangements are documented and operating robustly.”

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