The industry needs to embrace OFT rules regarding
commission disclosure, says Kurt Bradbury.
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The
Office of Fair Trading (OFT) Guidance to Brokers and
Intermediaries (OFT 1388 Nov 2011) regarding commission
disclosure (CD) makes clear our industry needs to embrace the rules
in the same way that IFAs had to, following similar measures. The
impact of CD for motor retailers is not insurmountable, but is
highly complex, and retailers will need support from finance
partners.
The fundamentals of the guidelines
are simple. Customers must be treated fairly and be in a position
to make informed decisions. Most customers can’t be expected to be
proficient in motor finance, and influence lies with dealers. In a
commercial, commission-driven environment, the OFT has concerns
that customers could be unfairly influenced to take products which
better suit dealers. CD is a by-product to be utilised as a key
indicator by the OFT in order to assess dealers’ motives.
The OFT’s objective is encapsulated
in its paper, section 4.41, “unfair or improper business practice
relating to considerations of product suitability and/or
affordability”, rules A-K (page 45), with K being the most
resonant: “Giving undue preference to the products of particular
creditors where the object of doing so is, or can reasonably be
concluded as being, for personal gain or advantage rather than in
the best interests of the borrower.” The contracts between finance
providers and dealers, and their volume bonuses and stocking
charges related to finance volume, makes commission difficult to
define. There is a temptation to use this complexity as a
smokescreen. However, the OFT will be wise to such
arrangements.
Most dealers have a panel of
finance providers. Some have more products than others. Say a
dealer has a priority contract with a lender that does not offer
PCP, only 60-month HP. The dealer has an option to offer a
shorter-term PCP from another company, but chooses not to due to
the financial benefits. It could be argued this situation is
detrimental to customers who may not be best off with HP. All
customers should be offered adequate explanations and all
qualifying options.
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By GlobalDataOur industry needs to cooperate.
Customers must be treated fairly; camouflaging commission and
point-of-delivery disclaimers are not the future.
The OFT will take a dim view of
companies that avoid the rules through manipulation. And customers
are familiar with CD; purchasers of life policies or mortgages in
recent years have had the right to know the commission, yet the IFA
market hasn’t collapsed. There will be growing pains, but the
long-term outlook and image of our industry will be better for CD.
The customer’s ignorance is a defence and the onus falls on the
intermediary. So my advice to dealers is: review sales processes;
engage relevant training; ensure commitments to lender partners are
not influencing the finance offers you make; and do not
discriminate against any available finance product.
Kurt Bradbury is Jigsaw
Finance’s sales director
