The FCA issued an interim report on their Motor Enquiry on 15 March 2017. Below is a summary of the key points.
Work so far: found that the largest lenders’ approach to credit risk and asset values appears robust.
The growth in motor finance has been strongest for lower credit risk consumers, who are less likely to face repayment difficulties.
Work: focusing on how lenders assess affordability and whether current procedures are working in the interests of consumers.
FCA Next Steps:
Consumers must have sufficient, timely and transparent information when taking out motor finance – FCA is testing this in a number of ways, including through a mystery shopping exercise.
Work: assessing whether firms are complying with current regulatory requirements and whether consumers are being given the right kind of information, at the right times, to make informed decisions.
“We are undertaking further work on responsible lending, particularly the approach taken by motor finance lenders to assessment of creditworthiness (including affordability). Our work will be primarily (but not solely) focused on assessments for higher credit risk consumers (lower credit score).”
Conducting further work in relation to commission arrangements à can be a “strong link between the dealer commission and the interest rate charged to consumers. This can create incentives for dealers to arrange motor finance at higher interest rates.”
Work: includes whether lenders and brokers acting on their behalf comply with current regulatory requirements. We are also testing whether commission structures have led to higher finance costs for consumers, because of the incentives they create for brokers
Expect to complete review of motor finance market by end of September 2018.
We will keep members updated on further developments.