In the summer a new Consumer Duty will be introduced that will affect the way motor vehicles are sold. We cover what these new rules are below and what car buyers should expect from dealerships and lenders.
What is the new Consumer Duty?
It’s new regulations that the Financial Conduct Authority (FCA) has introduced to set clearer and higher standards of consumer protection. It applies to any firm providing or brokering financial services. This includes motor finance providers and retailers who arrange motor finance. See also our recent blog on outstanding finance.
Why is the new Consumer Duty being introduced?
The FCA routinely finds unfair practices and approaches that firms take which harm consumers. This includes people being sold the wrong financial products for their needs, rip off fees and charges and inadequate support. The pandemic has left many people’s finances fragile. So the FCA felt that a complete cultural shift in the way financial products and services are sold was required.
What are the new rules under the Consumer Duty?
The FCA is introducing a new Consumer Principle that requires firms to deliver good outcomes for consumers. Firms will need to evidence for each customer the process they have undertaken to achieve good outcomes in four key areas:
Products and services
Dealers and lenders must ensure that the financial products and services they provide are appropriate and lead to good outcomes. This will require dealers to ask a range of questions. Such as how they are looking to use the car, what their monthly budget is and if they want to own the vehicle at the end of the agreement or not.
Price and value
Above all finance products must provide fair value. The price charged for a motor finance product will need to be justified based on the value it provides. This is therefore a tricky one for firms to deal with. Generally a ‘value statement’ will need to be produced for each deal arranged. The concept of ‘value’ goes quite wide, including if consumers understand the product and therefore have themselves assessed its value and how easy it is to move to a different product.
The customer must understand the finance products they use. The FCA specifically wants consumers to make informed decisions based on being given information presented clearly to them at the right time. This includes providing an understanding of finance product features, costs and benefits. So for a motor finance product consumers will need to know what happens at the beginning, throughout and end of the agreement. What rights the finance product provides and the flexibility it offers.
The FCA wants firms to provide a level of support that meets consumers’ needs throughout their relationship with dealers and finance providers. So this outcome is all about ensuring excellent customer service is delivered that enables consumers to realise the benefits of the products and services they buy.
When will it come into play?
The new rules will come into force as of 31st July 2023 for new or existing motor finance agreements.
How will this all impact on car buyers?
The new Consumer Duty is nothing but good news for car buyers. Firms must inform customers so they understand finance products, are properly supported throughout the relationship and receive fair value. Firm’s must have a board level ‘Consumer Duty champion’. They’re job is to ensure that customer outcomes are considered with every decision made. The objective is to deliver large scale cultural improvements to firms and promote competition.
These rules are already being followed to some extent. But all retailers and lenders will need to step up to ensure they are evidencing the Consumer Duty outcomes. Where firms are found not to comply with the rules they could face enforcement action from the FCA. The Financial Ombudsman Service will also set the bar higher when it judges complaints from consumers.
Run our award winning Gold Check to ensure a vehicle is clear of a motor finance agreement before you buy.