10 May 2023 – Dealers should have received fair value assessments from motor finance and general insurance providers as the latest Consumer Duty deadline has now passed (on 30 April).
While the new Consumer Duty regulations do not come into effect until 31 July 2023, lenders and general insurance should now have updated auto retailers on whether there is a reasonable relationship between the price buyers pay for their finance and general insurance products, and the benefits they receive.
According to motor industry compliance specialists, Automotive Compliance, specifically, this means understanding whether finance and general insurance products are appropriate for the target market and if the fees and charges are fair and reasonable. The latest deadline should be used by dealers to monitor whether they are on track to meet their consumer duty obligations.
Paul Speakman, director of Automotive Compliance, said: “There remains a considerable lack of awareness of the Consumer Duty regulations but the latest deadline on fair value assessment gives dealers the perfect opportunity to reassess their readiness to meet their obligations.”
“The fair value assessment undertaken by motor finance providers, lenders and general insurance providers reviews whether there is a reasonable relationship between the price buyers pay for either car finance or general insurance products and the benefits they receive. While this requires an element of judgement, it is likely to prove challenging especially if lenders or general insurance providers have not properly undertaken a client segmentation exercise and reviewed their fees and charging models.”
According to Paul, understanding the target market is essential in order to evidence how the finance options or general insurance products meet customer needs and any mismatches should be resolved so customers are not exposed to risks of harm and vulnerable client needs are properly met.
“Assessing the target market needs to be sufficiently detailed to enable auto retailers to properly guide buyers through purchasing options, via the right channels – whether in-person or online – so they can make an informed decision on which finance or general insurance option is best for their purchase.”
The FCA also expects lenders and general insurance providers to review whether their charging models are delivering fair value for customers as they are particularly concerned where charges are generic and pricing is not differentiated by customer needs or client segment.
“Having a clearly documented rationale behind why they charge what they do helps evidence the value your customers are receiving. There has to be a clear rationale or cost basis to the charging structure, so some things to consider when assessing charges might include how fees relate to costs and overheads or whether fees look out of kilter when compared with similar firms.”
Speakman concludes that lenders, general insurance providers and dealers need to apportion appropriate resources to fully realise their Consumer Duty responsibilities.
“It is vital to recognise the time and resources needed to prepare for and work through their Consumer Duty obligations, so it is critical not to leave it to the last minute.”
“By undergoing the process ourselves, we’ve been able to break the process down into a series of logical stages and while there is no quick fix, we can help make the process more manageable and create some positive business benefits, especially when it comes to shifting the customer service culture in retailers.”
