Brian Cantwell and Lorenzo Migliorato discuss motor finance, FLA member concerns, and FCA regulation with Adrian Dally, head of motor finance at the FLA, with additional reporting from Mishelle Thurai.
Motor Finance spoke to Adrian Dally, head of motor finance at the Finance and Leasing Association (FLA), about its activities and priorities in the car finance market. The Financial Conduct Authority (FCA) has been examining the motor finance industry in detail, with its exploratory review due in September this year. This has included sending mystery shoppers to analyse sales of finance when a car is purchased. For its part, the FLA has engaged with the FCA to inform it on what is happening in the industry.
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Motor Finance (MF): What has been the focus for the FLA in the car finance market?
Adrian Dally (AD): I think the biggest focus this year is the FCA’s exploratory work on motor finance. Essentially, it is a thorough piece of work by the FCA, and it is almost a once-in-ageneration look at the sector by a regulator. The FCA is still the new regulator in this space, and what it is doing is getting to know this very important sector in all its parts, relatively early on in its tenure. With the FCA update in March, we were cautiously pleased about the way it was going, in the sense that the regulator was painting a picture of an important industry that is working well and in the interest of the consumer. I think the March update was a bit of a watershed in terms of some of the media coverage on that subject. It essentially looked under the bodies and did a matter of microeconomic analysis. The risks were well understood and well managed,
and even under the Bank of England’s very extreme scenario, would lead to little impact on the economy. I appreciate that there is a lot of talk about diesel and so on, but I think that where the data is actually at is a bit different to where it is perceived to be.
MF: If the voluntary termination (VT) provisions were not in the update, does that mean the lenders in the motor finance sector would not be able to write as much business as they can now?
AD: If you think about what the world would look like without VT – again I would look at what the world would look like without a secured loan: it does change the terms of engagement significantly. Ultimately, the VT provisions have been there in the UK laws since the 1930s; they were written in for very good reason. As ever, that is the way the credit sector works and that is the way the insurance sector works: where you calculate, you price in what the risk of a particular agreement not going forward is, and ultimately it is almost like an insurance policy. It does have to be used appropriately for the purposes it has been designed for. If not, then the price for everybody else goes up and that is not desirable for anybody. So having it continued to be used, mainly for consumers in distress is very important.
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By GlobalDataMF: What is on the roadmap for the FLA’s motor section in the near future?
AD: Two of the four areas that have been pretty much signed off by the regulator are credentials and affordability. Its work there was backed by literally millions of lines of
data which it gathered from the market, other agencies, from its own subsidiary work, directed work and other market indicators. While the FCA is a very well-resourced regulator that has infinite sources of data, it engages with us for an understanding of what is going on in this market. How well does it all really work? What are the real issues? That is our day job, to have that conversation with the FCA, and that will continue. It also talks to firms individually to look under their bonnets, as it were, and that will also continue. The FRA is continuing to look exclusively at the communications taking place between consumer and sales, including by means of a mystery shop.. The FCA staff are very constructive: they are literally going out into the market and buying cars, to see how the finance selling goes. The FCA is a very well-resourced regulator – it has the resources to do its mystery shopping very effectively. So it is out there now, doing that.
MF: The March update was seen as a good statement for the industry. Is there also some talk about remuneration for the industry and how it makes its earnings?
AD: Yes is the short answer, but I do not think there is anything particularly new there. If you want to know what the FCA is likely to do on remuneration in this newly regulated sector, then you would look at what it has done over the last 10 or 15 years on other areas with intermediary remuneration; look at mortgages, insurance and pensions and so on. The FCA, and the FSA before it, produced what is known as the RDR, the Retail Distribution Review. It is looking at a newly regulated sector through a traditional prism, so I do not think we are expecting any new rocket science from it. I think what good looks like, in a remuneration sense, is very much out there, and it is just a question of the industry being in the right place on that. It is one to watch, but I would not expect any new science.
MF: What are the priorities for the FLA going forward?
AD: We have a professionalism agenda at the end of the year – we launched our apprenticeship scheme back in March, and we are relaunching our Specialist Automotive Finance scheme too
