Consumer duty - Motor finance portfolio letter 

March, 2023 - Shoosmiths LLP

On the 1st March, the FCA issued the remaining portfolio letters in respect of the implementation of consumer duty. For this summary, I have focussed on the motor finance portfolio letter.

I had a look at what words were being used in the letter and their frequency (see the word cloud graphic). Whilst this is not a detailed analysis, it’s interesting to note the prominence of “products”, and “information” in the context of the motor finance letter. It’s also perhaps not unexpected, but “outcomes” and “customers” also feature heavily.

Turning to the themes contained in the letter, here’s a quick rundown of what it covers (implicitly and explicitly) and what you need to do:

  • The FCA observe drivers of harm in motor finance and will be focussing supervision activity on the sector post implementation
  • Consider strategy (and culture) against the requirements of the duty
  • The status and role of each firm in the distribution chain requires careful analysis (at an individual dealer level)
  • Commission structures remain under the spotlight
  • Motor finance products may be considered as “complex”
  • Improve information to customers (at all stages in the journey) and test these
  • Monitor, review and change where required
  • Evidence, evidence, evidence
  • Ensure affordability processes are effective
  • Review all fees and charges under agreement, including interest rate
  • Business models are changing, firms need to be confident they continue to support customers
  • Lenders should support transition to alternative fuel vehicles and net zero ambitions
  • The structure of products, particularly subscription and PCP, need careful review and may require additional explanations or information
  • Resource needs to be balanced and support customers throughout the lifecycle of an agreement
  • Forbearance and support for customers in financial difficultly should be improved
  • The FCA have noted the importance of financial resilience and obligations of firms to report relevant matters to them (PRIN 11 and SUP 15)

The letter requires and deserves detailed attention and review.

Firms will now be advanced in the delivery of their implementation plans for consumer duty, although they must now take account of the FCA’s letter. In some instances, this may require a change to deliverables and for plans to be iterated further.

I will return to some further points in a separate note, but in particular, firms will need to review the FCA’s comments concerning their distribution networks and ensure it aligns to planned information delivery to distributors, required by the end of April.

Whilst the FCA’s clarification is useful in demonstrating their thinking, I suspect this may impact on some firms’ assessment of the distribution chain and the dealer, or broker’s role within it. This also has the potential to impact some commercial models and lenders’ appetite in this space. There isn’t long for this to be assimilated and communicated and it’s critical.

It's time to gather the teams and ensure that current plans meet the expectations of the FCA. Use this time well and prioritise actions and focus on the customer, outcomes and evidence...the clock is ticking, but there's still time. 


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