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Why is affordability traditionally overlooked when it’s central to the FCA’s evolving regime?

Recently, our MD, Martin Hill spoke to Motor Trader, to look at why affordability assessments have traditionally been neglected – despite being a key focus of the FCA. If you missed it, you can catch up below.

Shocking as it may sound, until recently if you walked into a showroom to finance a car purchase, very few car dealers would ask what you earned. It could be argued this approach made dealer-organised lending an attractive proposition – but at what cost?

Historically – considering most car loans were secured on the vehicle – any concern as to how a customer made repayments was something of an afterthought. The finance company owned the asset until all payments were made, so a car could usually be repossessed if necessary.

Affordability hasn’t been front-and-centre in automotive finance – because in the past it didn’t have to be. Since the FCA’s Affordability rules came into force in November 2018, appropriate assessments are now a regulated requirement of any finance proposition. Yet, many car salespeople still feel uncomfortable asking for even basic information such as the customer’s salary.

Trying to reduce embarrassment by saying “I know it’s a pain, but I’ve got to ask,” implies affordability is a tick-box exercise or a chore, demeaning the reality that such questions have the buyer’s best interests at heart. Furthermore, as the intermediary dealing with the customer – and the party set to receive commission on the sale – it is possible for a car dealer or finance broker to demonstrate that they are actively working on the proposal, potentially justifying the finance commission they earn on the deal.

Very few automotive lenders in the UK have incorporated defined affordability questions or queries into their finance proposal forms. Traditionally, it could be argued that this is partly due to lenders wishing to make the proposal process as smooth as possible for the customer and dealer, which taking detailed information about affordability can complicate.

Affordability isn’t going away – but the key to success lies with establishing a consistently compliant process. As such, DealTrak is building a working partnership with a group of lenders, dealers and legal experts, to try to build a common consensus on what good affordability practice looks like for the automotive finance sector.


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