The FCA Policy Statement means that the industry must prepare for significant change to finance commission models. Already, MotoNovo Finance has demonstrated that one of the two potential options referenced by the FCA, risk-based pricing, which is at the heart of the business’ MotoRate model, can deliver significant positives for many dealers and these are not only revenue benefits.
- All discretionary commission models for finance will be banned from January 28th;
- New commission models must avoid anything that looks like a discretionary commission arrangement, a definition that the regulator notes; ‘should be interpreted broadly.’
While the FCA does not specify what is acceptable as a commission model, they have noted; ‘It could include firms moving to risk-based pricing, provided the broker is not incentivised to set or adjust the rate charged. It could include flat fee models.’
Reflecting upon the FCA changes ahead, MotoNovo Finance Deputy CEO Karl Werner is clear that lenders and dealers have a duty of care to honour the spirit and letter of the FCA Policy Statement to protect car buyers and the broader dealer finance industry noting;
“The dealer finance model needs to be reinvented to meet the FCA’s requirements in full. There is no place for body-swerves or gamification that might replicate any part of the soon-to-be banned dealer discretion. Such a move would only serve to damage the reputation of dealer finance and encourage damaging claims management company activity.
“The changes required are an opportunity to demonstrate to the broad public the industry’s commitment to business cultures centred upon doing the right thing for customers. This principle is also an integral part of the FCA’s SM&CR responsibilities for senior leaders in dealerships and lenders. How we react to the test of embracing, not just the letter, but spirit of the FCA’s Policy Statement stands to have a big part in the future of dealer finance.”
Karl is clear that embracing the FCA’s mandate for change has the potential to be positive. It is something that has been reflected in very encouraging dealer feedback to MotoRate as he concludes:
“We see the required FCA changes as a significant opportunity to increase customer trust, finance penetration and income for many dealers. Going further, MotoRate and its headline APR rates and customer specific pricing approach are ideally suited to support the move to online sales accelerated by COVID-19. The experience over the last three months is that not only has MotoRate taken the traditional friction out of dealer finance, but it has also encouraged dealers to talk openly and positively about another FCA priority, commission disclosure.
“De-mystifying finance and trust-building have to be positives for the future of dealer finance. I am open to debate on alternative models, but every alternative must put every customers’ best interests at the forefront of the discussion.”