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Key Learnings from the F&I Conference 2018: Ethical Lending

Updated: Jan 3, 2019

One of the key talking points during the F&I Conference was the subject of ethics. While the room agreed that a strong moral code across the board is vital in order to uphold the reputation of automotive dealers, there was still discussion as to whether regulations were having a negative impact on dealer profitability.

But commentary surrounding this topic isn’t new. In March for example, a discussion paper from the FCA argued that companies can have their ethical cake and eat it. And, that ‘a consumer-focused culture makes firms more attractive to potential customers and talented employees – which, in turn – increases firms’ profits.’ Here we look back at some of the talking points from the conference.

Does digitisation hamper ethics?

Keith Bell from Barclays Partner Finance talked about the changing face of the motor trade. In order to flourish, you must be able to recognise and adapt to change – specifically to demand from millennials for the digitisation of many elements of the retail journey. That’s why integrations such as ‘sign anywhere’ and ‘design your car online’ are playing a key role in shaping the modern selling techniques.

As the hybrid sales process increases, there’s an ever-increasing disconnect between the customer and the salesperson. While automation can speed up the sales process – and provide a huge competitive advantage across the board – it’s important this isn’t at the detriment of the regulation.

The language barrier and legal agreements

How can you possibly understand a customer’s needs or financial situation – and agree a legal contract – if you are unable to communicate with them clearly? Relying on tools such as Google Translate for financing applications, institutional onboarding, legal agreements, document verification and insurance claims, simply won’t cut it.

Pradeep Parappil, co-founder of Megdap Innovation Labs explained that – given the vast range of socio-economic backgrounds in the UK alone – being able to converse with a buyer in their native tongue is crucial to providing ethical service.

Rather than seeing FCA regulations as a barrier, the F&I industry can use legal and regulatory compliance as a pathway to opportunity. Delivering a positive experience in a buyer’s local language – throughout the customer lifecycle – creates a point of difference in a crowded marketplace.

Do performance metrics hamper ethical behaviour?

As salespeople are handed targets to hit on a weekly, monthly or annual basis, it’s easy for them to cut corners in order to meet the demands of their boss.

While it’s common to measure a dealership’s success on the number of cars sold, the art of customer loyalty and advocacy is something that shouldn’t be overlooked. By setting KPI’s which reflect the changing ethical landscape, your overall sales process will fall into line.

By moving away from traditional methods of motivation – such as competitions or promotions, schemes for managers linked to team performance, incentives for sales of non-financial products or offers combining several high-risk elements – and measuring success against more ethical benchmarks, your entire organisation will transition also towards a more compliant and service-led business.

Commission vs. conscience

In a similar vein, it’s important not to let conflicts of interest arising from commission arrangements between lenders and dealers, creep onto the forecourt. It should be the salesperson’s responsibility to make sure the product is right for the customer.

The FCA looked at four different types of commission and found that some of these arrangements can provide incentives for brokers to arrange finance at higher interest rates. Ethically, we need to be working towards the best deal for the consumer, as putting your own £’s ahead of those of the buyer simply doesn’t work.

This applies across the board too. At DealTrak we are agnostic by nature – our only request is that any integration we add to the platform adds value to those who interact on it.

Can they really afford the repayments?

Joanne Davis of Locke Lord LLP explained that once the FCA’s new affordability rules came into play under PS18/19 – which they did on November 1st – there would be a significant shift in the way new finance agreements are assessed.

Although it was anticipated that only the customer income would be considered, under the new rules the FCA confirms that household income can be taken into account, provided the customer has access to that income – and it is available to the customer to make repayments.

There is a very high threshold test being introduced. Should it not be immediately obvious that the finance is affordable, you should undertake an income and expenditure test which also applies to any guarantors.

Is the product right for them?

Personal Contract Purchase (PCP) deals are also in the spotlight. Their high levels of customer retention can sometimes make it east to recycle an existing framework agreement rather than looking at what’s best for the customer.

While end-of-contract incentives are rife, it’s important to take stock as to whether the product is right for them. If a driver is constantly going over their allotted mileage – for example – the lender should make the customer aware that they are paying the price for flouting the terms of the agreement, but also offer alternative products which are more suited to their needs.


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