Motor Finance Regulations: Beyond Policies & Procedures

Earlier this month I wrote about the current focus on Motor Finance Regulations, especially the growing controversy around PCPs and the associated commission models.

Since then, the FCA has announced their intention to ban commission models in Motor Finance that are tied to the customer interest rates, estimating that this could save customers up to £165 million every year. Consultations on these plans are open now and will close on January 15th, with final rules set to be published later in 2020. The report mentions that the FCA is aware of these models existing in other Finance areas but not currently having reason to ban them there. After finding that many dealers were not properly informing customers that they would be making commission on a sale, the regulator is also looking to change the rules around how customers are informed of commission models, which would apply across many areas of credit outside of Motor Finance.

So how should the Motor Finance world respond to changes in Motor Finance regulations? In a response to the news the Finance & Leasing Association said many of their members were already moving away from commission models linked to interest rates. I expect right now there are plans being put in place to review systems and policies in these organisations to try to prevent any decisions which are commission-motivated and not in the best interest of customers.

But there’s another factor here – conduct. Changing internal systems is only going to go so far if an organisation has a culture that prioritises profit and sales over good customer outcomes. Conduct has been another regulatory focus area we’ve seen grow in importance, and we know regulators are looking to see a fundamental change in the culture of these businesses, to make sure that these organisations are focussing on positive customer outcomes. Under SMCR we’re seeing a lot more onus on senior managers to set a culture of positive compliance, and they can be held individually responsible for any failures on that front.