Delegates at the F&I Conference listened to a lot of discussion around the changing legislation, during the event last month.
12 months ago, AM online predicted a bleak year ahead for franchised dealers. Brexit, GDPR, diesel-gate and the rising minimum wage meant we started 2018 on the back foot, and as legislation continues to evolve, what do these changes mean for the F&I industry?
FCA Motor Finance Review
Joanne Davis of Locke Lord (UK) LLP explained that the FCA’s current – and ongoing – motor finance review began after figures from the Bank of England revealed that lending was increasing at the fastest rate in more than 11 years – hitting £192.2bn in November 2016.
In addition, the Financial Stability Report in November 2017 flagged high levels of household debt, relative to incomes. The motor finance sector was cited as playing a role, given the number of consumer motor finance agreements for new and used cars grew from around 1.2m in 2008 to circa 2.3m in 2017.
In addition, new finance contracts accounted for 88% of private new car registrations last year, while PCPs made up 66% of the value of new and used car finance lending – almost double the 34% in 2008.
The changing face of commission
As a result, the FCA wanted to look at whether there are conflicts of interest arising from commission arrangements between lenders and dealers and, if so, are these appropriately managed to avoid harm to consumers?
In light of this, one main talking point was around CONC 2.11 Remuneration and performance management policies, procedures and practices. The sales teams in the room were understandably vocal around the changes in regulation, as they could have a direct impact on their wallet.
The FCA requires firms to establish and maintain adequate policies and procedures designed to detect any risk arising from its approach to remuneration or performance management.
Clear and transparent communications
Dealers must present a balanced scorecard by providing clear and transparent information to the buyer, in order to ensure they understand the risks involved, to allow them to make informed decisions with regards to their credit.
If we consider this in the context of satisfied customer being the end-goal, a shift towards consumer-focused KPIs and a service-led business will naturally align your overall goals with those of the changing regulations.
Spotlight on guarantors
The FCA require firms not only to assess the borrower’s creditworthiness, but also asks them to consider the potential for the agreements to have a significant negative effect on the guarantor’s financial situation.
Although the study does not need to be as detailed as for the borrower, it should have enough depth and scope – taking into account any obligations which might fall to the guarantor.
During the panellist Q&A session, there was some debate as to whether distance selling will take off. Historically, there were 12 customer touchpoints during the car-buying process, but now there are only two.
Changing vehicles is usually the second largest purchase a family will make, and as a result, they often like to look and see a car before committing to buying. However, there’s still a case for distance selling, particularly with PCP renewals.
Commonly referred to as the Distance Selling Regulations, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, identify the three types of agreement between a trader and consumer as distance, off-premises and on-premises contracts. The specific information varies depending on whether the sale is made at a distance, for example, online or over the phone or face-to-face somewhere that’s not the business premises of the trader (also known as ‘off-premises’) or in a store/showroom.
Off-premises cancellation rights are more generous than if bought on premises, face-to-face.
When there is no face-to-face between a buyer and a dealer, the customer is entitled to a 14-day cooling off period – the date of which begins after the buyer has received both the goods and written confirmation of their rights. It’s worth noting too, that they are also likely to be entitled to a full refund if they refuse the car on delivery or after a short test drive. Failure to provide the required information, or to provide it in the way set out in the regulations, could result in cancellation rights being extended by up to a year.
Address regulations = create opportunity
As discussed in an earlier blog, Pradeep Parappil, co-founder of Megdap Innovation Labs explained that, rather than seeing changing regulations as a barrier, the F&I industry can use legal and regulatory compliance as a pathway to opportunity.
Focusing on the entire customer lifecycle, including the legal requirements of finance agreements – which requires complete understanding from the dealer in terms of exactly what the buyer needs, as well as by the purchaser with regards to what they are signing up to – can create a point of difference in an overcrowded market.
And finally, here’s GDPR
There was lots of apprehension over whether the enforcement of GDPR would spell the beginning of the end for motor dealers – no more cold-calling a salesperson’s little black book.
Six months on, the questions over what is and isn’t allowed under the umbrella of GDPR still rumble on, and the ICO has – rather humorously – addressed some of the common myths in the latest, Christmas edition of their blog.