Lenders must review their commission arrangements

The FCA has cracked down on the motor finance sector this month, expressing their “serious concerns” over the way that lenders are rewarding car retailers and other credit brokers.

But what does this mean for the industry moving forward, and what steps should lenders be taking in order to combat a potential spike in customer communications?

With firms now expected to take more care in ensuring customers are not unwittingly overcharged, firms must undertake a thorough review of existing commission arrangements.

How transparent are brokers when it comes to disclosing commission arrangements? Are customers aware of the interest they will be paying? The crackdown will put more pressure on lenders to have these conversations or potentially face heavy penalties in the future.

In addition, firms should also be looking at their existing obligations in relation to pre-contract disclosure and affordability assessments. This is particularly important when it comes to vulnerable customers, who may not understand the financial commitment they’re taking on – either because of physical or mental health issues, age or financial difficulty.

Lenders should be asking themselves: will this customer be worse off in the long-run by taking out finance? Developing a positive and, more importantly, responsible lending relationship with customers early on could really enhance trust in a firm and provide them confidence to speak openly if they experience difficulties later.

Following the FCA investigation, lenders may also experience a rise in the volume of customer contact, putting strain on existing operational resources.

If enquiries or complaints are not found to have been dealt with properly, customers could opt to escalate their complaint to the Financial Ombudsman, which will bring its own financial implications for firms – up to £350,000 worth.

Firms need to be looking at their current processes if they are to better support customers and ensure they manage any credit they take out wisely.

Sean Kulan is sector lead on consumer credit at Huntswood