Written by Neil Watkiss, Head of Consumer Credit, DealTrak
Cartels are a bad thing. Everyone knows that. Businesses colluding to the detriment of customers is, quite rightly, a criminal offence. But, what if competing businesses co-operated in the public interest? Would this ever be acceptable? Can there ever be a ‘benevolent cartel’ or is this phrase an oxymoron?
I believe that there is a case that can be made in our industry in relation to regulation.
At DealTrak we work closely with virtually all lenders operating in the motor market. We are regularly in discussions with our lender partners as, between us, we are making continuous enhancements to our many integrations. This gives us a unique insight into what lenders are thinking and planning.
I do not believe that I am betraying any confidences when I reveal that, currently, many lenders are contemplating making regulatory changes. For example, many lenders are keen to add affordability questions to the proposal process. Many are looking to make income fields mandatory. Others are considering asking customers to provide income and expenditure breakdowns.
Yet, each one of the lenders is nervous of making their desired changes as they fear that they will lose business to their competitors as dealers and brokers follow the path of least resistance, diverting proposals to those lenders asking for the least information.
As a result, the planned regulatory changes, that would ultimately benefit customers and lenders alike, are not made. In this sense, competition is operating against the interest of customers.
This is not the only issue. Operating within a principles-based regulatory environment, regulated firms are interpreting the principles in different ways. This presents other challenges. For example, if lenders are not able to co-ordinate their strategies, then, each lender will compose their own list of affordability questions. This will add an additional layer of complexity to the process for the dealers, brokers and customers.
In this environment, I have a great sympathy for dealers and brokers who, in my experience, are genuinely striving to operate compliantly. Regulation is introduced for the benefit of customers. Yet, in a click and deliver world, customers are increasingly frustrated at the time it takes to complete a car purchase. One dealer was recently telling me that a customer is required to sign anything between twenty and thirty-five documents in a compliance-led process that can take in excess of two hours to complete.
I believe that there is a compelling case for all participants in this market to co-operate in delivering a simple, consistent and compliant buying experience for customers. Lenders, dealers, brokers and (most importantly) the general public would all be beneficiaries.
Let me be clear, firstly, as to what is not being advocated. For the avoidance of doubt, any discussions relating to pricing, commercial arrangements or scorecards are completely out of scope. Competition between lenders operates in the customer interest, and this is sacrosanct.
To accurately establish a customer’s ability to meet any proposed finance repayments is clearly in the interests of all parties involved in a vehicle sale. All responsible lenders wish to do this greater precision. Dealers and brokers have a vested interest in ensuring that their customers return for repeat business. Most importantly of all, positive outcomes for customers are paramount. That lenders are hesitating to make such changes through fear of losing business to their competitors in a regulatory ‘Mexican standoff’ serves nobody’s interest.
I believe that we would all benefit if consensus was reached in the following areas:
- That winning short-term advantage through being the least compliant party fails the customer completely
- That establishing the ability to repay should be at the heart of every lending decision
- That a clear, straightforward and consistent set of finance proposal questions would be in the interest of all parties
- That thought is given to how the advent of ‘open banking’ might further enhance the proposal process
Beyond that, all lenders should, of course, be free to underwrite proposals as they see fit. But they will be doing so based upon more a more complete understanding of the customer’s financial situation.
However, any solution must also take into account the views of dealers and brokers. After all, in the vast majority of cases, it is they who are interacting with the customer either in the showroom, over the telephone or through a website. Their input into the discussion would be vital.
In this situation, there is a great opportunity for industry leadership. In my view, the perfect organisation to pick up the gauntlet would be the The Finance & Leasing Association. If anyone from the FLA is reading this, your industry needs you! It goes without saying that we at DealTrak will be happy to assist in any way that we can.