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The customer ‘take on’ stage is arguably the most important stage in a customer’s journey from when it comes to making sure they get the most appropriate product for their needs. So it’s crucial that they understand the benefits and risks of the product they select – and the ones they don’t – and are not left with unsuitable borrowing.
Understanding the full range of products
Customers’ knowledge of the range of finance products available on the market will differ widely. Some are savvy borrowers, well-used to terms like Unsecured Personal Loans (UPL) or Personal Contract Purchase (PCP) and able to give good descriptions of each product if asked. But for other customers, particularly first-time car purchasers or those historically reluctant to use credit, such terms can be bewildering.
Motor finance firms (both brokers and lenders) need to ensure the range of products they offer their customers are clearly described, with pros and cons / risks and mitigants, clearly pointed out. For example, if a finance product has a balloon payment at the end, this should be made as clear as the regular monthly premium or any special introductory rate. That way, the customer is clear on their obligations throughout the term, at the end and beyond.
Consumer Duty programmes in motor-finance firms should, therefore, be ensuring their product literature – both online and offline – gives customers adequate descriptions of the consumer finance product types available to them.
Product disclosure and the adequacy of point-of-sale information
Consumer credit sales processes are typically not differentiated between advised sales and non-advised sales in the same way as mortgages, for example. But there is a requirement within CONC that firms satisfy themselves the credit product is neither targeted at, nor entered into by, customers for whom it would likely be unsuitable. A potential consequence of Consumer Duty is we may see firms increasingly moving toward differentiated processes for advised and non-advised consumer credit sales, where their needs, requirements and preferences for certain credit features above others are regarded to by lenders and brokers. This is another reason the FCA has stated its desire to reduce the risks of consumer harm in the motor finance sector, and unsecured lending overall.
Commission disclosure
The FCA has voiced its concerns about commission affecting outcomes in motor finance for years. Enhanced disclosure requirements became effective in January 2021, but despite this, complaints about commission in motor finance are still a common reason for upholding determinations at the Financial Ombudsman Service. This suggests that firms have either not yet been able to adequately explain their commission arrangements to satisfy customers’ understanding or have not adequately addressed their complaint handling arrangements when customers express dissatisfaction with commissions payable / received.
Control of dealer networks and clarity in the distribution chain
Many motor finance lenders have a network of dealers who intermediate between the customer and the lender. Some of this credit intermediation is ‘mere introducing’, whilst others carrying out applications on behalf of the lender are responsible for assessing affordability and delivering disclosure documents.
It’s now just over six months since the FCA enhanced its expectations for Principals and their control of Appointed Representatives (ARs), so firms with either ARs, or a network of credit brokers authorised in their own right should take this opportunity to ensure their networks:
- are compliant with existing, detailed requirements in CONC
- have undertaken sufficient planning and preparation for Consumer Duty
- ensure that all firms in the distribution chain have mapped out the customer journey and all are fully cognisant of where their responsibilities for the customer start and end.
We can help
Our dedicated team regularly advises firms in consumer credit, insurance and mortgage sectors, and we are currently working with motor-finance lenders, brokers, and dealer networks. We have over twenty years’ experience helping firms to both become authorised by the FCA and remain compliant with UK regulation.
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