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Financial

19/08/2020

Online motor retail specialist iVendi is warning dealers that they need to ensure their technology is keeping up with recently-unveiled new Financial Conduct Authority regulations on commission. These changes will ban online system models that give brokers or dealers an incentive to set higher interest rates, to boost their commission, 

According to iVendi chief executive James Tew, there are four risk areas that need to be resolved within any digital motor retail environment, before the regulations come into effect next January.

“The first is to ensure that the entire customer journey is recorded in detail by the platform, in a manner that is auditable in case of any future challenge,” he explains. “There is a danger under the new rules where the first-choice lender has declined an application, as it could be easy for customers to claim they have been mis-sold because the actual rate paid was higher than the initial advertised rate.”

Tew goes on to point out the second problem is a greater requirement to inform the consumer about commission on every transaction and how it is earned. This is not just a matter of altered wording. Dealers must ensure information is easily accessible to the user, as commission models can vary even within a single lender, and it’s imperative that this information is disclosed at multiple points for each specific product.

A third development Tew highlights is greater use of fixed-APR products to circumvent the commission question. But this can create problems across a dealer’s panel. Dealer technology has to show the APR for each individual lender on offer, so that if the primary lender declines, the customer can move onto a second choice. In relation to this, dealerships must also be able to control the representative example within digital finance promotions, and include an audit trail to see who makes changes and when.

The fourth area of concern for iVendi, is new risk-based motor finance products coming to market in increasing numbers, which are expected to see wider adoption. 

“These are designed to help the most creditworthy consumers get the best rate,” says Tew. “But not all online and showroom solutions can yet handle their complexities when it comes to quoting, and dealers will need to resolve this issue where it arises.” 

In conclusion, he adds: “We’ve been looking closely for some time at how our own products will work within the new regulations and we believe that, whatever route dealers choose towards meeting the new regulations, we can now align our systems to match. Because we are FCA-authorised, we are able to bring a high degree of insight.”