FCA motor finance changes present ‘promotional and profit opportunity’

Forthcoming Financial Conduct Authority (FCA) changes to the motor finance sector should be embraced as a “promotional and profit opportunity” by used car dealers.

An optimistic view for the future of used car finance by compliance expert Tara Williams, chief risk and compliance officer at Autoprotect Group and i-Comply managing director has suggested that the necessary “root and branch” changes required of many businesses in the sector need not spell disaster.

“Dealers should look to the forthcoming FCA changes to motor finance as a promotional and profit opportunity and energise their used car finance approach to realise,” said Williams.

“Compliance and bottom-line improvement can go hand in hand.”

Williams sees potential for a three-fold finance opportunity emerging from the FCA changes, which were announced in July and ban on discretionary motor finance commission models while stipulating new commission disclosure rules.

They are:

• To increase used car finance penetration, which across the industry is modest.
• To break negative trust perceptions that are often noted in research about dealer finance.
• To leverage finance more actively as a promotional and profit opportunity.

Although Williams feels much of the industry has moved on from simply servicing the needs of ‘captive’ customers who need finance to buy a car, she is clear that any legacy issues about finance need to be addressed.

Primarily, these include optimising finance income per transaction and a light touch on transparency.

She said: “There is nothing wrong with finance as a profit centre, provided it is achieved whilst delivering the good customer finance outcomes sought by the regulator.

“We already see excellent examples of how a positive and proactive approach to used car finance can enhance the customer experience and deliver good outcomes for customer and dealer alike.

“Transparency can really lift the veil off negative perceptions held by some people about dealer finance.”

While the FCA Policy Statement on the final rules for motor finance include a comment about the need for ‘minor changes to some of our rules and guidance,’ Williams stressed that, since the FCA also highlighted the existence of poor disclosure practices, dealers should dismiss the idea that minor changes are all that is required – not least because this would risk missing the used car finance openings available in promotional and profit terms.

“A root and branch change by many dealers when it comes to used car finance will serve them well. It will address the potential ‘pain’ of compliance failures and breaching SM&CR requirements”, she said.

“Equally, it will support the ‘gain’ of increased finance income achieved by increasing overall finance penetration. Just ‘tweaking’ an existing approach risks falling short on both counts.”