THE announcement from the Financial Conduct Authority (FCA) of an impending ban on discretionary commission (differences in charges or DiC) models within the motor finance industry has come as no surprise to most – in fact, many had already moved away from such practices, amid concerns they incentivised interest-rate overcharging to the detriment of consumers.
But what does this mean for the industry – and how can firms adapt in order to ensure readiness and even turn this change into a golden growth opportunity?
The majority of industry players, including the Finance and Leasing Association, have welcomed the move, which the FCA has pushed back to January 2021 to allow the market to recover from the impacts of the COVID-19 pandemic. It is being widely viewed as a catalyst for competition, as well as restoring customer fairness – with the FCA’s consultation on the issue suggesting they are being overcharged interest to the tune of £165million per year.
Quotevine Chief Executive Daniel Layne said some concerns remain over areas of the ban, and more clarity is needed – including specific definitions around which vehicles it applies to – as well as the potential for unintended consequences such as dealers exploiting the loophole left by excluding personal contract hire (PCH) from the changes, in order to make up lost revenue.
He added: “At Quotevine we welcome the change, but also recognise the potential pitfalls. Lenders, for example, will need to demonstrate close attention to the business practices of their brokers and dealerships to ensure compliance, given the buck will, effectively, stop with them.”
So, how can lenders, and the brokers they serve, turn this change into an opportunity?
Through the use of cutting-edge technology that specialises in maximising efficiency whilst maintaining credibility, said Layne. “In reality, the industry has had plenty of time to gear up for what is effectively a rubber-stamping of something that has been trialed for some time, and many have already adapted the way they operate to reflect best practice.
“And for those that haven’t yet, there’s still time to ensure they stand out from the crowd, treating customers fairly and offering outstanding service amidst what is likely to play out in the form of significant market consolidation.
“Forward-thinking companies are stepping in to help them do that, by providing the cutting-edge technology they need to seamlessly adapt.
“As a leading provider of innovative technology to the sector, Quotevine offers a myriad of options to help lenders and brokers take this and other developments in their stride, including market data analysis, workflow management and intelligent compliance tools.
“As with any major change, it’s vital to understand how the industry is responding to it for effective business planning. We can help funders establish where the impact is going to be felt amongst their broker community and see what the future looks like, by looking for trends in the deals being proposed to them and average interest rates between one broker and the next.
“Any responsible funder will see this as a very clear indication that the FCA is taking consumer rights seriously in the motor finance market and perhaps, also, eventually in the contract hire market although that’s not currently in the scope of these regulations. It would be wise to start looking at trends in their deals proposed and implement systems to ensure their brokers are audited regularly.”
Quotevine offers workflow management systems that can do that data mining and use technology such as machine learning to pick out people who are proposing deals that they shouldn’t be, to protect customers but also enable them to be proactive about seizing new opportunities that emerge.
Layne said: “This is vital, given the responsibility lenders will carry for compliance. It’s a shared responsibility and, ultimately, the broker is only introducing the business to the lenders and it’s the lender’s decision whether or not they proceed with that deal and on which terms. So, from the regulator’s point of view, it’s the lenders that have the bulk of the responsibility.
“This analysis can be retrospective, too, it’s important to look backwards at historical deals, identifying where people have been overcharged and work out whether it’s one broker or a group of brokers who are doing that, and who they need to keep an eye on. Because, once this regulation comes in, imagine how many financial claims firms will be gearing up to start bringing actions.
“Therefore funders also need to be working out what provisions they need to make against possible compensation claims, and that involves looking backwards and then forwards to identify patterns, introducing workflow to monitor their existing introducers and bring new ones on board in a compliant way, and make sure new additions are always up to date and trained, then detecting anomalies on an ongoing basis with machine learning.
“There’s no room for complacency and the strongest will survive.”
Layne believes this to be the first step down the road of bringing the kind of restrictions other financial services markets have, into the motor finance market.
“The bigger the efficiencies you can gain from improving your workflow, the better. There will be consolidation and, while this will be an opportunity for some, the impact of things going wrong or being found to be non-compliant could be much more serious.
“We have tools to help both funders and the brokers they serve operate in a compliant way; helping funders ensure they’re not skating to where the puck is now, but where the puck will be when the FCA starts introducing further reg.”