In the second of two features looking ahead at trading conditions in 2012, Richard Brown and Georgina Lavers ask senior figures to share their views on the perennial hot topic of regulation.
Go deeper with GlobalData
What is expected of the new Financial Conduct Authority (FCA)?
Karen Wagstaffe: My experience of the FSA and sales practices across dealers is that they are still not complying with the very basic requirements to provide customers with all the information to make an informed decision.
The positives should be highlighted here: increased transparency for customers will leadto less customers taking out insurance products that they either dont need or want. But will we see increased customer satisfaction?
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataPhilip Ross:The time scale for this change still seems uncertain at the moment, and could be the end of 2012 or early 2013.
The FCA could implement more reporting requirements and audit activity, and require systems development which can only be more costly to our industry. In turn, costs to the customer will increase which is not what anyone wants. Proportionality is the key.
If capital adequacy requirements were introduced, which are not designed for the creditmarket, it may put pressure on certain lenders which could reduce the number of players in the market, or reduce the amount offunding available to customers.
Paul Harrison: The government has considered scrapping the Consumer Credit Act (CCA) altogether (the legal framework for the consumer credit markets) and replacing it with a FSMA-style regime.
We believe this would be a huge mistake as the FSMA is designed for the savings and deposit-taking markets where the risk lies with the customer.
In the credit market, the risk lies with the finance company who is lending money (or assets) to the customer to repay. The FCA should build on the CCA framework.
Steve Reynolds: Hopefully, this is a chance for a fresh outlook on regulation. In reality, it probably means more of the same.
George Miller: Initially, we dont anticipate significant change. However, we do expect lending in general will become more regulated as the FCA takes on more control.
Graham Prestedge: Its a bit like trying to answer when you dont even know what the question is yet. The one thing we do know is, currently, no government is going to be anything other than on the side of its consumers.
Andrew Currie: This is a rebadged FSA. It will do nothing to increase accessibility to finance for a large number of consumers and will continue to burden finance companies.
Unless claims management companies are also regulated to help combat the rise in speculative complaints, the finance industry will continue to be at an unfair disadvantage.
Will SAF be sufficient to maintain self-regulation in the industry?
Graham Prestedge: Lets be brutally honest: It will only be as good as what you are actually regulating for. If anything comes over the hills that is more draconian or more retrospective, then you will have to rethink.
Karen Wagstaffe: Is SAF really addressing the issue? Feedback from some SAF-trained clients is that it is not. I suspect online learning is simply not enough.
Steve Reynolds: The FLA has done a great job in using SAF to prove that the industry is keen to raise the level of knowledge of its staff. However, the scheme needs to be split into modules tailored to different aspects of the industry if it is to fulfil what is required.
Andrew Currie: SAF has introduced minimum standards. This does not cover the whole industry.
There are conflicts with a number of regulations covering finance and the sales process for a car: irresponsible lending and customer affordability, against a car salesman trying to maximise the value of a deal.
Consumer groups do not like self-regulation, so No is the short answer.
Paul Harrison: SAF has been successful in boosting knowledge across the motor industry. It has the support of the Office of Fair Trading (OFT) and is recognised as a kite-mark for professionalism. It will continue to be updated to help give industry staff the latest information on regulatory compliance.
David Challinor: Of the 240 people employed by The Funding Corporation, about 175 have SAF accreditation a figure which underlines our commitment to the scheme.
SAF training is not a substitute for legislation, it is a means of supporting firms to remain compliant with regulation. In other words, SAF training complements and reinforces the existing legislative framework.
Self-regulation is important for the credit industry, and SAF has demonstrated its value in increasing customer confidence in the information they receive in car showrooms.
At a purely practical level, SAF enables our customer-contact staff to answer any questions put to them about the various ways in a car can be financed, regardless of whether or not the product is provided by a member-company of The Funding Corporation.
Training also gives staff confidence when explaining our products to customers. They are providing facts in an unambiguous way, and are equipped with the knowledge to deal with any related customer questions.
Philip Ross: SAF is being enhanced and developed further to be the umbrella for regulations and dealer training within our industry.
The dealers who are SAF-approved definitely have more knowledge. In time, customers may appreciate SAF-approved dealers and the link with the www.financingyourcar.org website where customers can see a listing of all the SAF-approved dealers.
SAF is welcomed by the OFT, FSA, Trading Standards and Retail Motor Industry Federation (RMIF), so we will fully support it.
Will commissions disclosure be the next big headache?
George Miller: No. It is a question of fairness and reasonableness. If a customer receives a fair deal for their credit rating and the commission is reasonable for the service being provided it should not be a problem.
We could well see the rebalancing of dealer profitability towards vehicle sales.Ultimately, sales are based on the cost of change be this the price difference or pounds per month.
Steve Reynolds: Yes. In a market and industry that is negotiation-led, can someone tell me what benefit it will have to all parties?
Paul Harrison: The OFTs new guidance for credit brokers and intermediaries summarises many of the existing legal requirements for those companies. The specific requirements of the document differ depending on the business models adopted but finance companies are working with their broker and dealer partners to help them implement them.
Chris Sutton: The OFT expects dealers to disclose the existence of any commission arrangements prominently and sufficiently early in the relationship. If asked, dealers must disclose the amount of the commission.
If the customer must be informed that there is a commission arrangement and if that commission information is disclosed, does that alter the mechanics of the sales process? If the dealer says they may earn a commission from the deal and has to say how much, that can really change the nature of the conversation.
If a consumer knows the amount of commission, they may challenge it, or try to negotiate. It could change things, but if you look at life insurance, investment and pensions industries which were regulated the same way a long time ago there was similar talk then. Those industries did change, but they still function, and business is written even though commission is openly disclosed.
Finance companies and dealers need to sit down and discuss what it means: what changes to the documents and sales process will be necessary? We must have a solution that sits with the spirit of the guidance, specifically, transparency, but still makes a beneficial deal to the customer available at point of sale.
Graham Prestedge: Commission disclosure has got to be discussed openly and on an industry-wide basis.
The problem is none of us really knows what it means and if one body or company interprets it differently then we will get Consumer Credit Directive (CCD) Mark II, which is up to everybodys different interpretation.
Philip Ross:As chairman of the motor Division of the FLA, I can say all the finance companies have agreed the FLA should produce a non-binding practical guidance paper on credit brokers and intermediaries which includes commission disclosure for our industry. We are also communicating with the RMIF who are working with the dealers.
We are taking advice on the OFTs guidance and will act accordingly, but our initial view is that we believe we can work within this guidance, although there is more work to be done on this over the next few months.
Karen Wagstaffe: I think we are all just crossing our fingers here, commissions disclosure is potentially the big one for 2012.
Are the complications of CCD now resolved in car finance?
Karen Wagstaffe: CCD compliance is on the radar of the European Commission and dealers may be mystery shopped to assess it. CCD and the OFT are predominantly concerned with consumers receiving advice oncredit that meets their needs and takes into consideration their circumstances, and that any advice is given in good time to allowthe consumer to make an informed decision as to whether that finance is suitable or not.
Steve Reynolds: If you have embraced the concept of what the CCD set out to achieve and have procedures in place then it can only benefit the profile of the dealer.
George Miller: CCD went extremely well for us at Moneyway. The engagement of our dealers and retailers was excellent. Change of this nature always costs the business, whether in systems or investment of resources.
We would prefer that there was little change to the underlying structures as, ultimately, those costs feed through to the final price paid by the customer.
Chris Sutton: Front of our mind is customer treatment and how to handle customer complaints. Bankers and car dealers are not well known for dealing well with complaints. Weve taken steps to liaise earlier with dealers to come up with resolutions.
Whether claims are accepted or not, as an industry we must raise our game in terms of the way complaints are handled.
Philip Ross:All companies did a lot of work, system and process changes in implementing CCD.
We worked closely with our dealer network and they are following the correct processes. It has bedded in smoothly and is now part of our daily operation.
Graham Prestedge: Are we over it? Yes, I do believe we are.
