Where do we go from here – somewhere better

We’re only three months into what will be at least eight months of motor finance diagnostic work by the Financial Conduct Authority (FCA) – but do we know enough at this point to accurately anticipate what the long-term effects of this process will be for the industry?

I think we do. Motor finance is a sound product sold in a highly competitive market to customers who value the flexibility it provides. The FCA’s work changes none of those facts. 

What has changed, though, is market dynamics. 

Gone are the days of the passive consumer who’s much more interested in the car than the finance agreement. Greater scrutiny of the paperwork by customers is a bonus, because the more engaged they are and the more they know about the agreement, the easier it is to demonstrate value. 

Speaking of value, the motor finance market relies on the expertise of brokers and dealers to match customers with the best vehicles and finance agreements – and as such they need to be paid for their skills. Long-term, the mechanisms used to remunerate intermediaries must be simple, transparent and disclosed as a matter of course.   

The third long-term effect of this whole episode needs to be a rethink of the UK regulatory system, rather than continuing with the spectacle of a conduct regulator that sets rules for the industry only to have them interpreted by an Ombudsman Service that will decide off its own back what is ‘reasonable’, rather than adhering to what was intended by the regulator. 

So, a lender can follow a decree set down by the FCA but still find itself on the wrong side of ‘right’ if the FOS does not agree with the FCA’s stance – the fallout from which clogs courts, feeds the claims management culture, and alienates investors.   

And yes, all of this is being watched with side-eyed disbelief by contemporary OECD countries, whose alternative dispute resolution bodies naturally take their positioning from the regulator so that their lenders can operate with clarity and certainty, and customers can resolve disputes quickly because everyone is playing by the same rules.  

We are far from alone in our frustration with the UK’s regulatory landscape. In a recent speech, Nikhil Rathi, the FCA’s chief executive, acknowledged that we stand out in Europe for all the wrong reasons, including CMC activity, and that he could understand why some would call for a review of the system by policymakers. 

This needs to be top of the agenda for an incoming Government – especially one dealing with empty coffers – because getting the regulatory foundation right creates fertile ground for growth.