The phrase ‘that’s the tip of the iceberg’ is often overused, but not in the case of three motor finance firms facing a class action in respect of overcharging claims. First, the excessive interest claims are eye wateringly large and second, if Courts follow the PPI ‘Plevin’ precedent, many more firms will be targeted with similar claims.
The FCA has been proactive in the motor finance sector for several years, ever since it fired a warning shot at the industry in its 2017/2018 business plan and then launched a motor finance market review, but have motor finance firms’ responses been quick or comprehensive enough?
As risk consultants, we have witnessed the FCA drive to eliminate consumer harm, across all the sectors they regulate, by forcing firms to provide fair value, issue timely and transparent information and appropriately manage conflicts of interest (including commission arrangements) in an increasing drive to resolve and eradicate unfair relationships. The car finance sector is now facing that spotlight.
In recent years there has been a shift in consumer behaviour from vehicle ownership to usership. With the cost-of-living crisis biting, we are already hearing about inappropriate car switches in respect of Personal Contract Purchase plans (PCP), where a client wishes to avoid high repair bills or has fallen out of love with an alternative fuel vehicle, part way through the term of the plan. We are concerned about the processes involved here, even without considering the Consumer Duty aspect.
We acknowledge the challenge for lender firms, particularly in the control of dealer networks and the oversight of individuals’ behaviour in thousands of dealerships across the UK. Against this backdrop, we know some lender firms take the view that it is sufficient that a finance broker is FCA authorised, and therefore it can be assumed that they will be compliant with FCA rules. This approach simply does not cut it with regulators, in the same way that it doesn’t in other lending sectors.
The FCA makes the point that the complexity of motor finance products can result in consumers not understanding how they work and more of a focus is put on monthly costs rather than the total amount payable. Affordability matters, particularly in a highly targeted sales environment.
The car finance industry simply must ensure it meets the challenges of the rapidly changing market, particularly in respect of the control and oversight of dealer networks if they want to avoid costly claims and regulatory action. Get in touch to learn how our risk consultancy services can help your firm.