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What should you expect when being sold finance and insurance by car dealers?

Car key, money and receipt on wooden table

Car key, money and receipt on wooden table

If you’ve bought a car from a dealership in recent years you would have no doubt been given the option to purchase it using finance and probably would have been sold the odd insurance add-on product too. Both finance and insurance (F&I as it’s known in the trade) give dealers additional income on top of any profit they make from the vehicle through commission paid by lenders, brokers and insurers. So dealers have quite a significant incentive to sell F&I to their customers.

But in recent years the financial regulator (Financial Conduct Authority or FCA) has strengthened its rules relating to F&I and this means there are certain obligations that dealers must meet when they sell these products to you.

What should you expect from dealers?

Unsurprisingly dealers should be aiming to sell you a product that is suited to your needs. Product suitability is key to ensuring you experience a good customer outcome. If this doesn’t happen and the dealer attempts to force the sale of a finance or insurance product then they are not adhering to the FCA’s conduct rules and its principles. What does best practice look like?

Regardless of whether you are buying from a small or multi-franchised dealership the above elements should be in place as part of the sale process. The FCA expect all firms they authorise to exhibit high standards by assessing the customer’s needs and providing them with clear, relevant information. The above will only become more important from July this year when the FCA introduces its new Consumer Duty which we blogged about recently here.

Commission and disclosure

In January 2021 new rules were implemented by the FCA that require dealers and other brokers to disclose the existence and nature of commission relating to a finance agreement. The rules are fairly similar for insurance products.

Although the dealer isn’t required to set out the amount of commission they must notify you if a commission has been received and how any commission is structured/provided ‘in good time’ e.g. as part of the sales journey before you set up the agreement or policy. However, if you do want to know the amount of finance commission the dealer receives you are within your rights to request this and if you do it must be provided – this is specified in the FCA’s rules and has been for many years.

Although many customers would not necessarily make a decision about the car/finance/insurance product they go for based on how much commission the dealer is earning it is deemed to be important for providing transparency to customers. Lack of transparency in the past was closely connected with the mis-sale of various financial products – the biggest being Payment Protection Insurance.

The FCA will continue to push firms to improve their standards. But it is important that consumers understand what the process should look like also and hold firms to account.

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