Greater transparency is on the way in motor finance

The long awaited report on motor finance was published this month by the Financial Conduct Authority (FCA).

It wants to change the way commission works in the motor finance sector because consumers could be paying more than they should.

The FCA found that some dealers were over-charging with higher interest charges in order to obtain bigger commission payouts for themselves.

The 23-page report reveals that the FCA visited 122 motor retailers, including 37 franchised retailers, 60 independent retailers, 14 car supermarkets and 11 online brokers, offering either finance-only solutions or an introduction to a franchised retailer.

The exercise was far from perfect. The FCA admits its findings need to be “taken in context” and acknowledges that “the sample size was small and biased towards independent retailers” offering PCP or other forms of hire-purchase (HP).

It added while it was not possible to simply extrapolate to the wider market, nevertheless it was concerned issues raised by the mystery shopping may apply more generally.

The dealer mystery shopping did reveal some things that dealers can do something about now if they have not already done so.

It found that some dealers appeared to assume that the customer knew what they wanted when they arrived at the showroom.  Not true. They may know a lot about the car they want to buy but not necessarily about finance.

It found that some salespeople were quick to start negotiating an overall finance deal with a particular focus on one finance product over another.

And sometimes staff did not consider whether alternative options should be offered, with an explanation of how they work, to better enable the customer to make an informed decision.

It also pointed out that for new car sales, PCP tended to dominate sales discussions, with other forms of HP usually being offered only as comparators.

And in some cases the customer expressed a clear desire to own the vehicle outright at the end of the agreement, but this was either ignored or not given sufficient weight.

The FCA has been looking at motor finance now for two years and the latest report is another step forward. Now it will get in touch with those firms who have problems. It can then opt to strengthen its existing rules or ban some commission models.

One thing is sure: greater transparency in motor finance is on the way.