Rana Amar 400

Suppliers have welcomed the ban on discretionary finance models introduced by the UK’s Financial Conduct Authority, in a bid to save consumers £165 million a year.

This week’s announcement follows a consultation by the FCA in October last year that found commission for some car retailers was linked to the level of interest charged, which created an incentive to sell more expensive credit.

CrediCar chief executive officer Amar Rana (pictured) said the move would “put customers in the driving seat” when they choose and buy auto finance.

He added: “In reality most lenders stepped away from Difference in Charges (DIC) commission models some time ago, so today’s announcement will really only affect the minority of lenders who persisted with the model despite criticism levelled at it by the FCA in the past.

“Dealers reading the announcement will however be starting to realise that the FCA are intent on changing the way in which finance is sold in dealerships.”

Rana said the move would put additional responsibility on dealers when communicating financial promotions to consumers, but also mean less control when setting interest rates on finance products.

Finance providers will need to make sure they can demonstrate that every finance sale, wherever it takes place, complies with the FCA’s rules, he warned, adding that an “inevitable consequence” will be greater use of technology by both dealers and lenders to manage and prove compliance.

He said: “Forward thinking lenders and dealers need to act now if they haven’t already done so to re‐examine their sales processes as they digitalise, paying ever more attention to ensuring that they are transparent, that they treat customers fairly and that outcomes for customers are optimised.”

CrediCar’s solution matches customers to lenders, takes care of regulatory compliance, and provides a “plug and play” platform that can fit quickly into dealers’ and lenders’ technology.

CrediCar was recently admitted into the FCA Regulatory Sandbox, where it will be demonstrating that it provides positive outcomes for customers as it works with early‐adopter dealers and their lending panels.

Motor finance lender MotoNovo has been helping dealers to move away from discretionary models ahead of this week’s FCA announcement.

It has launched a new pricing model, MotoRate, which has been adopted by nearly 800 dealers

Mark Standish, chief executive officer at MotoNovo, said: “We have seen dealers using MotoRate increase used car finance penetration by 40%, report higher levels of customer trust and enhanced chassis profit.

“Embracing the changes required can be the catalyst to grow dealer finance, notably in the used car space.”

MotoRate uses risk-based pricing to meet the FCA’s aims of breaking the link between customer interest rates and broker earnings.

Standish added: “There are big gains to be had from embracing change and in light of the ‘new normal’, increasingly omnichannel car retailing environment, the move to increased transparency in interest rates and the availability of lower rates could not have come at a more crucial time.”

The FCA’s ban will be implemented on January 28, 2021 to give the industry time to adapt.

You can download a full copy of the FCA's policy statement here.

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