The Financial Services Authority (FSA) has
announced it will increase scrutiny of the incentivised selling of
finance products, including car finance.
Martin Wheatley, managing director of the FSA
and who will become head of
the FSA replacement body the Financial Conduct Authority (FCA),
told
the Today programme he was acting on the “bad
practice” seen in the furore over sales of payment protection
insurance (PPI).
Go deeper with GlobalData
The FSA has already removed commission-based
selling on investment products through the Retail Distribution
Review but Wheatley said sales commissions on finance products
would not be outlawed outright.
“We’re not banning it,” said Wheatley. “We’re
just saying most of what we’ve seen just don’t work.”
‘The way the wind is
blowing’
Peter Minter, managing director of Moneybarn
and chairman of the motor finance division of the Finance &
Leasing association said the announcement was “a good indicator of
the way the wind is blowing” and was consistent with guidance by
the Office of Fair Trading,
from which some regulatory powers will be transferred to the
FCA.
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By GlobalDataRegarding the effect on Moneybarn, Minter
said: “We’ll have to be very sure of our incentive programmes with
brokers and intermediaries.”
Likewise, David Kenmir, financial services
regulatory partner at PricewaterhouseCoopers (PwC) advised a “need
for firms to really get to grips with and demonstrate product
suitability for customers…
“Firms will have to prove how they understand
and appropriately manage customer risks as part of their day to day
business, and they will need to define conduct risk appetite.”
Withdrawal and
reparations
The announcement may surprise and disappoint
to the industry which had recently witnessed a
high-profile court case over PPI withdrawn and tougher action
declared against claims management companies (CMCs) chasing a
potential £9bn-worth of compensation payouts over PPI.
The withdrawal of an appeal to the Supreme
Court in the case of Harrison v Black Horse at the end of August
has appeared to put an end to a
long-running claim of unfairness in the commission percentage
charged by the lender in the payment of a PPI premium.
Previous judgements in the case, including at the court of
appeal, in favour of the lender had also sent positive signals
to the industry.
Further protection of lenders, to the chagrin
of CMCs, is a possibility should the
Financial Ombudsman Service raise the threshold of PPI claim
cases without the lender being charged a case fee from three to
25.
Meanwhile, CMCs could now face redress by the
Legal Ombudsman and pay forced reparations themselves to customers
over poor service as part of an independent complaints service for
dealing with CMCs by the Ombudsman.
Further comment and analysis of the
regulatory changes will be published in
the September issue of
Motor Finance
magazine.
richard.brown@vrlfinancialnews.com
