The why of F&I

Partner feature: In September the Financial Conduct Authority (FCA) will start its work to measure the success of the new rules for motor finance that came into force in January. The stated approach is as follows:

• We will look closely at any attempt by a motor finance firm to introduce a commission model that could lead to the same harm that we have sought to ban.
• We will monitor how well firms comply with the ban on discretionary commission models by carrying out supervisory work across a sample of firms. This work will start in September 2021. It will include looking at what commission models firms are using as an alternative to discretionary commission arrangements, and the ranges of interest rates and commission earnings. This information should help us assess whether the potential for customer harm remains and, if so, how we address it.
• We will also carry out a point-of-sale mystery shop exercise to measure lenders’ control over dealer networks. This work will assess whether firms, where they are required to have taken appropriate steps to ensure dealers/brokers comply with relevant regulatory requirements.

See the full publication here.

Alongside ensuring they are fully compliant with the FCA requirements today, retailers should understand the trajectory created by the FCA’s plans to introduce a new ‘Consumer Duty’ in July 2022. It would set more explicit expectations for firms’ standards of care towards consumers.

The Consumer Duty, “will drive a shift in culture and behaviour for firms, meaning that consumers always get products and services that are fit for purpose, that represent fair value and are clearly communicated and understandable”.

Good outcomes and F&I

Arguably F&I was traditionally built around maximising revenue rather than maximising customer value. By pivoting the culture and strategies around the ‘Why F&I?’ question, the two need not be mutually exclusive.

In F&I terms, following this thinking aligns with the FCA’s desire for businesses to embrace the spirit and letter of placing customers’ needs at the heart of their business.

Products, such as GAP, warranties, and smart insurance, have an inherent value for car buyers, where they meet an identified need and are still a profit opportunity for a firm. It is the outcome created for customers that is critical for this new model and a focus for a firm’s product portfolio.

F&I can and should be addressing the problems/potential problems faced. Access to reliable, affordable transport, minimising financial risks and adding convenience all easily spring to mind.

If a product is tailored to a customer’s identified needs in a way they value, they should be given the opportunity to purchase it. In F&I, dealers ‘reason for being’ is to help customers to discover and value products that will make their lives easier. Get this right and success can follow.

The six outcomes expected by the FCA are:

• Outcome 1. Fair Treatment
• Outcome 2. Products designed to meet needs
• Outcome 3. Clear information
• Outcome 4. Suitable advice
• Outcome 5. Products perform to expectations
• Outcome 6. No unreasonable post sale barriers

By Tara Williams, AutoProtect group chief risk and compliance officer