The shortage of any tick box approach will remain a key challenge for dealerships providing financing and insurance products because the impact of latest consumer duty laws starts making itself felt.
The Consumer Duty regulations which got here into effect in July are geared toward creating more stringent standards for consumers and improving competition within the retail financial services market.
Speaking on the Financing & Leasing Association (FLA) Financing the Future conference on September 12, Roma Pearson, director of consumer finance supervision on the Financial Conduct Authority (FCA), told delegates: “We don’t need a tick box approach to the buyer,” she said. “Real world outcomes are what really matter here, which suggests customers are given the knowledge they need at the suitable time and presented in a way that they’ll understand.”
She said the FCA will likely be increasing its engagement with the industry, explaining that the federal government is planning a second stage consultation next yr which can allow industry to offer feedback.
She added that the FCA believes the upper standards of the duty and the shift to specializing in customer outcomes would require a big change in lots of firms’ cultures.
“Now that we’re six weeks into the duty, I need to stress this is just not a ‘once and done’ compliance exercise. There’s been an enormous amount of effort that is gone into meeting those deadlines in July and it’s just vital that those efforts proceed beyond.
“We expect you to be proactive, reviewing what you are delivering over time to learn from what’s working well and to act while you find problems. This includes carrying out regular reviews to be sure that your services proceed to fulfill the needs of your customers.”
She added that appropriate data-driven motion ought to be taken which could mean making product changes, providing additional or different information to the client and providing appropriate mitigation where mandatory.
“You possibly can expect that at every stage of the regulatory cycle to be asked to reveal how what you are promoting model, the actions you’ve got already taken or are taking and the way your firm’s culture operationally is concentrated on delivering good customer outcomes,” she said, warning that FCA enforcement, while proportionate, would prioritise probably the most serious breaches ‘acting swiftly and assertively when there is a have to achieve this’.
She added that in the long run, the duty would offer a possibility to maneuver towards a less prescriptive and more flexible regulatory framework with fewer recent rules.
Chatting with am-online on the conference, Alex Hughes, managing director, CA Auto Finance UK, expressed his concerns concerning the FCA’s ‘evolutionary’ approach: “It’s almost as in the event that they’re saying that the absence of tick boxes is a positive thing, and I’m sure that there is excellent reason for that. But however, tick boxes enable you to to know should you’ve done every little thing.”
“To supply an analogy, it’s just like the difference between being given a college textbook with the answers within the back. Now, the difference is that you simply’re being asked to reply an essay query which has to go away to be marked.”
He added that the industry could turn into frustrated if the regulator takes too long to judge implementation which could create ‘legacy risk’.
He cited for example the indisputable fact that the brand new consumer duty requires co-manufacturers to enter right into a written agreement outlining their respective roles and responsibilities in an effort to comply with the regulation’s requirements which could mean drawing up recent industrial agreements.
“The FCA wrote to the industry back in March about co-manufacturers but failed to provide any proper guidelines. In consequence, the industry is taking a view on what constitutes a co-manufacturer. In 4, five, six years’ time, the FCA could come back and say they were actually co-manufacturers all along, and that immediately creates a legacy risk.”
“If it’s principles-based finance that is smart but we would somewhat have a fast answer to our homework than a solution in six years’ time telling us that our homework was incorrect all along.”
Hughes said dealers and intermediaries had a big role to play in supporting the client’s decision-making process but that if selling finance became so unattractive attributable to the high burden of regulation, they might stop offering finance and that the automobile buying public would ultimately suffer.
He said continuing to supply automobile finance was especially vital in view of latest consumer insight research by Auto Trader which was presented on the conference that surveyed consumers who had bought a vehicle within the last six months.
Rachael Jones, director of automotive finance at AutoTrader, said the research showed that younger automobile buyers especially had a worrying level of information of key terms utilized in a typical conversation when finalising a contract.
The findings also revealed a big male/female divide with women having less understanding of finance terms along with the marked difference of understanding of terminology between age cohorts.
“We expect consumers to know 17 different terms and that is just the finance agreement. We’re not talking about every other a part of the car-buying process.
“Only 65% of that younger age cohort understood what an rate of interest was, only 54% of them understood what a mileage limit. There was also generally a really low understanding of what things like representative APR, residual value and guaranteed future value were.
“And yet, they’ve just entered right into a PCP contract which might really trip them up. That could be very worrying. It’s definitely something to be fascinated with when it comes to how we may also help consumers understand higher and provides them clarity and reassurance.”
Commenting on the findings, Hughes said: “Imagine how much worse it might be if there was no salesman or business manager to really help the client understand they usually’ve just got to seek out it for themselves on the web or by asking the bloke down the pub.”
“I feel consumer duty regulation could be very difficult when it comes to ensuring that we have really properly understood and implemented it because the regulator intended, and ensuring that the regulator hasn’t got to date ahead of the shoppers that it’s attempting to protect when it comes to where their understanding is.”
This Article First Appeared At www.am-online.com