WHEN the Financial Conduct Authority (FCA) took over regulation of the consumer credit industry six years ago, finance brokers found themselves under greater scrutiny as the regulator sought to raise standards in a sector that, by its own admission, has not always got things right.
In other consumer credit industries, such as secured loan broking, FCA regulation elevated the status of brokers and the products on offer and led to shake out of some of the rogues who had given the sector a bad name. So, can the same be said for the car leasing sector?
Keith Hawes, director of Nationwide Vehicle Contracts, said FCA regulation has led to significant benefits in process improvement, customer satisfaction, and an immediate understanding of what’s going on in the business, enabling the firm to adjust and react, almost immediately, to bumps in the road.
“It keeps us on our toes and enables us to show customers honest performance through real time feedback, demonstrate that we are a trusted and transparent organisation and easy to do business with,” he says. “It also leads to better levels of retention.”
While Hawes’s experience shows some clear positives, the cost and resource required to meet FCA guidelines has been substantial for Nationwide too.
“Frankly, I can only imagine such a regime must be stretching smaller brokers to breaking point in terms of implementation and managing compliance,” he says.
Hawes said that his firm has gone to great lengths to adhere to the FCA rules. This includes adding a new layer of people resource within its compliance team. This full-time team manages the company’s “three lines of defence” process of checking and reporting on compliance, highlighting failures with management and ensuring rectification is implemented.
Other regulatory measures include introducing a new complaints and customer satisfaction e-questionnaire programme, where if a customer scores below a given level a “Red Alert” is sent to key managers and followed up by a compliance manager.
The company also conducts regular e-learning for every employee covering key aspects of the business, such as Treating Customers Fairly, data protection, anti-fraud and money laundering.
Spencer Blake, director of Wessex Fleet, said the FCA’s ethos of ‘Treating Customers Fairly’ has certainly boosted standards and has become central to how the firm operates.
In addition, the British Vehicle Rental & Leasing Association (BVRLA), has sought to solidify FCA regulation by introducing an inspection programme, code of conduct, training platform and dispute resolution service for all its leasing broker members.
“Customers can now be assured that if they interact with a BVRLA leasing broker they will be treated openness and honesty,” Mr Blake explains.
While Hawes believes any further regulation could result in an over-policing of the sector, he noted there are areas for improvement – particularly when it comes to mis-selling.
For example, there has been recent issues concerning the way franchised dealers have been selling Personal Contract Purchase (PCP) products.
“Franchised dealer groups may have up to 200 individual retailers all at arm’s length, so there is a danger in losing control of how your salespeople are dealing with customers,” Hawes said.
To help tackle this, he believes anyone selling or arranging finance should be certificated for each type of product like IFAs are – although “not so severely” – while dealer group may need to introduce a new layer of management or reporting for selling finance products.
Adrian Dally, head of motor finance at the Finance & Leasing Association (FLA), said additional regulation could be required for certain contract agreements to help strengthen standards.
“It’s important that motor finance products provide the same level of protection for customers, but Personal Contract Hire does not have the full protections under the Consumer Credit Act that PCP and Hire Purchase do,” Dally stresses.
PCH does not, for example, have the voluntary termination rights or information requirements that the other products offer to customers. “This is not ideal,” Mr Dally adds.
But Louise Wallis, head of business development at the National Franchised Dealers Association (NFDA), asserts extra regulation is not strictly necessary to improve brokers’ day-to-day operations.
According to the NFDA, consideration should first be given to ensuring the right regulation is in place and applied evenly across the motor finance sector.
“Striking this balance will enhance the business environment for brokers and ensure that all market participants adhere to the rigorous standards that vehicle retailers and lenders are required to meet,” Wallis said.