Digital finance systems need to be ready for new FCA regulations, says iVendi

Dealers need to ensure their technology is keeping up with new Financial Conduct Authority (FCA) regulations on commission unveiled recently, iVendi is warning.

The online motor retail specialist says that the changes, which see a ban on models that give brokers or dealers an incentive to set higher interest rates to boost their commission, creates a number of danger areas when it comes to online systems.

James Tew, iVendi chief executive, said there are four main points of potential weakness that had been identified and need to be resolved within any digital motor retail environment before the regulations came into effect in January.

He said: “The first – and the most important - is to ensure that the entire customer journey is recorded in detail by the platform in a manner that is auditable in case of any future challenge.

“There is a danger under the new rules where the first choice lender has declined an application, as it could be easy for customers to claim they have been mis-sold because the actual rate paid was higher than the initial advertised rate.

“The second is the greater requirement to inform the consumer about commission on every transaction and how it is earned.

“This is not just a matter of changing some wording but ensuring that the information is easily accessible to the user.

“The focus on prominence especially is key and, as commission models can vary even within a single lender, it is imperative that this information is disclosed at multiple points across the journey for each specific product.”

Fixed APR products

Tew said that the other areas where technology needed to be monitored existed around the wider changes that dealers were making to handle the new regulations.

One development iVendi is seeing is a greater use of fixed APR products in order to circumvent the commission question.

However, this can create problems across a dealer’s lending panel as a whole.

Tew said: “What your technology really needs to do is show the APR for each individual lender with which you work, so that if the primary lender declines an application, the customer can move onto the second choice.

“In relation to this, the dealership also needs to be able to easily control the representative example within its digital finance promotions and include an audit trail to see who makes changes and when.”

The company is also seeing new, risk-based motor finance products coming to market in increasing numbers and is expecting to see wider adoption of these over time.

These are designed to help the most creditworthy consumers get the best rate but Tew said that not all online and showroom solutions can yet handle their complexities when it comes to quoting. This is an issue that needs resolving where it arises.

Tew added that the new regulations hadn’t come as a surprise, having been widely signposted, and that many dealers had already adopted approaches to cope.

He said: “A lot of retailers have already been thinking about this issue for a while and one of the few positive effects of the coronavirus crisis is that it has given them time to prepare by experimenting with new processes, looking at how they work in terms of meeting compliance, satisfying customer needs and delivering an online journey.

“We’ve been looking closely for some time at how our own products will work within the new regulations and we believe that, whatever route dealers choose towards meeting the new regulations, we can now align our systems to match.

“Because we are FCA authorised ourselves, we are able to bring a high degree of insight to the whole issue.

“Our fundamental approach is to ensure the customer is placed at the centre of the entire process, with a high level of transparency and information provided, to meet the general TCF principles in letter and spirit.”