Recently, our compliance manager Sam Marsden, spoke to Asset Finance magazine, to explain the five key regulatory headaches facing dealerships in 2019 – and how automation can help. If you missed the article you can catch up on it below…
Gone are the days when car dealerships had carte blanche in terms of selling finance and insurance. While compliance may often be seen as a barrier to business, best-practice can prove to be an enabler – if it’s done right.
1. Assessing product suitability
Historically, the Office of Fair Trading (OFT) would have been the regulatory body for dealers, until FCA regulations were implemented in April 2016. And, while some of the smaller changes are still filtering through the system, compliance and automation can often go hand-in-hand when it comes to dealerships adhering to the founding principles of the modern marketplace.
The premise of the FCA is for firms to put the customer at the heart of what they do, and everything which sits around the rules supports that principle. With that in mind, it’s crucial that dealers ensure the products they are selling are suitable for each – unique – individual.
The move towards a more automated, digital operation allows for repeatable and reproducible processes within a dealership. Working through an online set of predetermined assessment questions – which a salesperson is unable to bypass – when making product recommendations, helps to ensure governance and oversight obligations are more easily discharged.
2. Audit trail and evidence
It’s all well and good thinking you’ve made an accurate assessment of what a customer needs, but in order to be compliant, everything you do must be capable of being reproduced, in English and on paper.
Evidencing your assessment of product suitability with documentation is crucial. A firm must undertake reasonable steps to confirm the creditworthiness of a customer – including their ability to make repayments – before entering into a regulated credit agreement.
Regulated businesses must also be able to provide clear, written information about the products they are selling and prove they have worked with the buyer to achieve the right outcome. This is where automation can help: by capturing lender requirements and fulfilling dealership’s own obligations.
While some larger dealerships will likely have an in-house function which takes care of all things compliance-related, smaller firms may look to undertake a co-source arrangement to help alleviate the headache of generating a compliant audit trail.
The DealTrak platform calls upon impartial guidance from the Finance and Leasing Association to form the basis of a question-set for dealerships to work through. The system facilitates finance and insurance transactions, as well as providing daily F&I administration, management and reporting activities as standard – thus creating a clear audit trail.
For example, a customer may arrive with a personal contract purchase (PCP) product in mind, but the questionnaire may identify – based upon their needs and circumstances – that hire purchase (HP) is better for them. If, part-way through their contract, the customer decides they are unhappy with the product, transparency over the decision-making process will be important in the event of a complaint and vital if brought in front of the Financial Ombudsman Service (FOS).
3. Lender and product agnostic
Under CONC 2.11 – remuneration and performance management policies, procedures and practices – the FCA requires firms to establish and maintain adequate measures to detect any risk arising from its approach to remuneration or performance management.
This is where automation can provide a distinct opportunity. Dealerships should implement an assessment process which simply connects people who want finance with those who are lending the money – with no emotions involved. After all, it’s impossible to truly assess product suitability if a retailer has an incentivised relationship with an F&I provider.
Additionally, it’s important not to let conflicts of interest – arising from commission arrangements between lenders and dealers – creep onto the forecourt. The FCA’s thematic review which is expected in the New Year, is likely to place great emphasis on the responsibility of dealers, lenders and brokers to be accountable for their agnostic status.
4. GDPR obligations
There was lots of apprehension over the implementation of GDPR and how it could impact the ability for motor dealers to continue to contact customers and process their data.
The changing legislation – combined with the move towards a more efficient, digital sales process – can provide an opportunity for dealers. Integrations such as ‘sign anywhere’ are playing a key role in shaping the modern selling process, for instance.
A pre-set process can also speed up sales – and provide a huge competitive advantage across the board – but it’s crucial that consent processing, data retention and deletion obligations remain in place.
Third-party F&I platforms should take away the stress of keeping abreast of some of the regulatory and legislative obligations. As the data processing element, the system should include a function which auto-deletes data to save dealerships worrying about the safe storage, disposal or destruction of information, further down the line.
5. Consistency and efficiency
In essence, the FCA regulations require dealers to ‘document what you do and do what you document’ because if it’s not recorded somewhere, it doesn’t exist.
Historically, a salesperson would have to write down all customer details, before picking up the phone to lenders, faxing over customer documents and seeing where finance might be available. A missing or wrong piece of information could spell disaster for all.
By removing human error and interpretation, automation not only creates efficiency, but also provides the necessary toolkit needed to evidence compliance.
Financial markets need to be honest, fair and effective so that consumers get a fair deal. The FCA’s role is to make the markets work for individuals and businesses – large and small – as well as the economy as a whole.
The customer must be at the heart of the entire F&I process – by operating a robust and compliant regulatory process, it can only increase consumer confidence and make you their supplier of choice.