A lack of
standardisation means dealers are taking things into their own
hands. Fred Crawley reports.
Go deeper with GlobalData
By the start of
December, the majority of the UK’s motor finance houses will be
writing business in accordance with new Consumer Credit Directive
(CCD) legislation.
Systems have been rewritten
at a cost of hundreds of thousands of pounds each, dealers and
brokers have been drilled in the new ways of selling and contracts
are beginning to trickle through under the new system.
But despite the efforts that
have gone into ensuring compliance, the claims management companies
(CMCs) that have been thriving on the PPI fiasco for years may be
in line for a new way to embattle the industry.
Many fear that firms
currently focusing on VT and PPI claims will use CCD to their
advantage from 2011 onwards, and will grow stronger on disputed
contract values averaging £10,000 as opposed to £400 for PPI
deals.
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By GlobalData
Lacking
precision
The weak point for the
industry seems to be that everyone is doing CCD in their own way.
The new legislation, it transpires, lacks precision – leaving room
for multiple legal interpretations of a number of major points from
different lenders and their legal advisers.
Despite these variations (for
example the difference in the starting point of the Right of
Withdrawal period observed between Black Horse and Santander
Consumer Finance), each lender is equally compliant in their
interpretation.
As a result, any one of the
country’s major finance houses can now feel confident of standing
up well in the eyes of the regulator – but things are looking more
stressful for motor retailers.
The Finance and
Leasing Association’s SAF competency test for dealers, extended
during the third quarter to encompass points of the new CCD, saw a
massive spike in applicants during November as dealers have rushed
to ensure compliance.
But it has not changed the
fact that different finance providers are asking for different
things.
Larger dealer groups are
seeing different approaches to CCD compliance from each funder they
work with, and are having to prime their staff and systems to adapt
to their various requirements.
Simon Barass, F&I
director at the JCT600 Group, said at a recent FLA conference that
the differing requirements of finance companies were causing
considerable administrative concern for dealers, as well as a
potential risk in terms of customer perception of
mis-selling.
Other F&I directors at
the event, including Paul Bentley of Lookers Plc, echoed their
concerns despite agreeing that on an individual level finance
providers had handled compliance excellently.
They questioned how long it
would take CMCs to latch onto the fact that customers were being
asked for different sets of information from different lenders,
being judged by varying standards of affordability and having
information delivered at the point of sale according to various
different definitions of the term “adequate”.
Compliance expert Stephen
Dawson of law firm Arthur Cox said that motor finance companies
could have been more “bold” in their treatment of CCD, going
further from their existing procedures to create whole new
standards for selling motor finance products.
Call for
standardisation
Others went so
far as to call for an industry-wide standardisation of CCD
compliance, a suggestion which the FLA said it was looking into as
a possibility for 2011.
Doug Moody of Mercedes-Benz
Financial Services thinks that dealer hopes for a standardised
industry approach to CCD compliance are unrealistic, given the
practical and financial realities of making broad systems
changes.
“We tried to make this as
painless as possible by keeping our approach to the new regulation
as close to the current state of play as possible while ensuring
compliance,” Moody says.
“Needless to say, other
finance providers had the same approach – as such, everyone is
running a slightly different regime.”
This doesn’t mean that any
one lender is wrong, he argues, due to the points of ambiguity
allowing for different but equally compliant legal interpretations
of the legislation. It does, however, mean that dealers must get
used to working with different approaches from different companies,
he says.
“The idea that finance houses
as a community could have been bolder with their approach to CCD is
laudable, but there’s a cost attached,” Moody adds.
“The changes to systems
already made have cost hundreds of thousands of pounds for most
providers and any further investment wouldn’t have been too welcome
on the tail end of the recession.
“In any case, we have had
relatively little time to make these changes as an industry. The
government changed its mind several times in the run up to CCD and
left us with a short time to comply.”
In hindsight, Moody concedes
the industry could have done more to engage dealers at an early
stage of discussion and there could have been more interaction
between the FLA and the RMIF.
“The problem now is that some
of the larger dealer groups are trying to standardise their own
approach to compliance, and it doesn’t help that their franchises
are each trying to match up with their manufacturer’s own standards
for processing compliant business,” he says.
Dawson sees little room for
dealers to be involved in actual interpretation of requirements,
commenting: “I would be concerned if they did. The aim, insofar as
they are acting for their finance partners, is to toe the party
line.”
He concurs that retailers
could be left “slightly adrift” when asked in detail about issues
such as Right of Withdrawal and the finer points of its
application, but says the solution is a case of administrative
effort.
“I would have suggested that
the training brief is to keep everything going back to the creditor
– second guessing or filling in blanks would be an issue,” Dawson
adds.
“For my part, I always
emphasise the need for clear and comprehensive dealer operating
agreements. Many of these seem to be one page documents but they
are utterly critical in managing risk and exposure. We have all
sorts of issues to cover such as data protection, insurance sales
and CCA compliance.
“Too many leave this to
chance and I see this as the best way to avoid dealer induced
compliance problems.”
Good record keeping
is crucial
Kurt Bradbury, one of
the directors of major dealer finance broker Jigsaw Finance, takes
a different point of view based on his experience of working with
dealer groups in the CCD predicament.
“The principals of the
legislation are sound, however they are so open to interpretation
in terms of suitability and affordability that a CMC could easily
raise doubts about the qualifications of a dealer or
broker,” Bradbury says.
He says that operating
agreements such as those discussed by Dawson are already being
changed to shift more compliance responsibility to the point of
sale, and that dealers need to be working on their own universal
safeguards against mis-selling claims.
“Operating agreements are
changing to make dealers and brokers liable for any regulatory
breaches or mis-selling claims – we’ve seen it happen already”
Bradbury adds.
The crucial element, he
argues, is good record keeping – a discipline the motor retail
industry is not renowned for.
“Irrespective of different
lenders’ slants on CCD, a dealer should have an audit trail that
goes well beyond the legislation,” Bradbury continues. “Such a
robust audit trail is needed, because when a CMC gets onto a
lender, the heat will inevitably be passed to the
dealer.
“We are working with a large
panel of funders and, while they are all coming up with sound
compliance solutions, there is one thing that, without exception,
they are not grasping; the threat here is not the regulator but the
Financial Ombudsman Service and the CMCs.
“Nevertheless, if a dealer
can evidence very quickly that they have done the job correctly,
99.9% of problems will go away.”
Jigsaw’s solution for its
dealer partners has been a co-operation with systems provider ITC
Compliance, an insurance specialist that has been training motor
dealers since the introduction of insurance regulation in
2005.
ITC has recently added a
motor finance module to its systems, which it is offering
free-of-charge to motor retailers. The module gives dealers a
single platform that caters for different lenders and their
interpretation of the rules – in essence, a shortcut to the sort of
industry-wide standardisation discussed at the recent FLA
conference.
“The system presents the
right questions to the dealer’s desk, depending on which funder is
being used, and helps put the customers in a position where they
can make an informed choice” claims Bradbury.
Bradbury’s view of the retail
motor industry’s best course of action is informed very much by the
behaviour of CMCs over the sale of PPI. Like many of the dealers
themselves, he expects the ‘no win, no fee’ firms to put the
industry under a lot of pressure over CCD.
Optimism
Others, however, are taking a
more optimistic stance.
Karen Wagstaffe, the
compliance consultant behind I-Comply-Online, thinks that dealers
have already learned their lessons from PPI, and that what lies
ahead will be “business as usual”.
“I’m very pragmatic about
this. Awareness is key, but dedicated systems and training aren’t
too necessary – just a reinforcement of best practice,” Wagstaffe
says.
That best practice, she
insists in agreement with Bradbury, is in record keeping. She
thinks lenders are doing a lot to support dealers in the event of
complaints arising, so long as they have the right paper
trail.
She adds: “Creditors will be
keeping evidence for dealers – finance agreements will be kept and
most lenders are putting a clause in their customer declaration to
say: ‘I have had an adequate explanation of the product, and have
been given SECCI in good time’”.
Likewise, she says, in order
to get deals paid out, retailers are signing declarations saying
they have carried out their part in compliance. So long as records
are kept, she argues, there should be no problem.
“Those dealers who didn’t go through a deluge of PPI
complaints were those with good enough transparency and paperwork
to ensure they will not have a problem with CCD,” Wagstaffe
reassures.
