Finance commissions one week on: What we’ve learnt so far
As the dust settles from the Court of Appeals ruling on car finance commissions, we’ve pulled together an update on what we now know about the ruling and what retailers need to do to comply with the ruling, following our webinar this Tuesday. Read on to find out what practical advice Jo Davis, CEO of specialist law firm Auxillias, has for retailers now navigating this unprecedented change in finance.
How has the market reacted?
Our latest webinar highlighted that, reassuringly, our market data shows no signs of a significant impact on demand for vehicles. Demand remains robust and the overall Market Health, our measure of the strength of the market based on supply and demand, is very strong at a positive 15%.
We have also seen many lenders and brokers now returning to the market after pausing any new business activities following the ruling.
Ultimately, consumers do still want to buy cars and still want to utilise finance with the ruling seemingly not having a major impact on these behaviours. However, we believe transparency and choice will be key to restoring trust in the future and to maintaining consumer confidence in finance.
For retailers, ensuring there is transparency is crucial with a survey of consumers earlier this year revealing that 1 in 4 believe that retailers are the most responsible party in ensuring they receive a fair value when taking out car finance. This survey also revealed the factors that would help build trust with a retailer when buying car finance, with a commitment to no hidden fees i.e. transparency, the most important factor in building trust.
Over two-thirds of retailers have indicated they have been significantly impacted by the ruling and our survey showed the changes that many retailers have already put into effect. We have seen no major activity from retailers looking to re-coup any potential losses from the removal of commissions, with our onsite data showing no rise in admin fees being advertised on our site.
Supporting what we are seeing on our platform, when asking retailers what consumer perceptions of the Court of Appeal ruling were, 80% of retailers say there has been no change in consumer interest for taking out finance and 80% of retailers also saying consumers have not asked questions about commission on finance agreements following the ruling.
Interestingly, when we asked the retailers during the webinar if they think that disclosing the amount of commission will put consumers off taking finance products, 28% responded that it will consumers off. What’s more, 60% of the retailers think their total finance income will decrease moving forward so questions remain on how this will impact consumer demand going forward.
Five top tips to comply now
Jo Davis once again joined our webinar to outline exactly what retailers need to be doing to comply with the ruling and ensure they are compliant. Here are her five top tips to ensuring you are compliant:
Review Documents and processes – to ensure clear, prominent and transparent disclosure of:
Your status and independence and the service you’re offering
Commission Arrangements!
Informed consent capture arrangements/documentation to be put in place between you and your lender panel.
Capture and record confirmation of understanding and consent to commission.
Train staff on the above changes.
Prepare for a surge in claims, complaints and DSARs (Data Subject Access Requests) from CMCs (Claims Management Companies).
Act in line with Consumer Duty and update your conflicts of interest arrangements.
What, when, and where to disclose?
The process of disclosure needs to be clear and adhered to by retailers. Jo took the time to go into great detail on what, when and where to disclose. The details of what is needed for disclosure are outlined below but in essence it falls to retailers to be as open and transparent as possible.
What should a retailer disclose?
Your activity as a credit broker, your status, your independence and what your service does or does not involve.
You need to declare that you make commission from arranging finance
You need to declare the amount of commission - Any commission or fees or other remuneration arrangements between you and the lender
You need to declare how the commission is calculated (e.g. flat commission/ % of loan value)
You need to obtain acknowledgement customer has understood this and, in respect of any commission, agrees to it.
If the consumer is dealing with a Finance Broker directly, then the Broker needs to declare the amount of commission to the consumer.
All remuneration paid across the chain should be disclosed to the customer, including where there is both a primary broker and a secondary broker:
Lenders should disclose the remuneration that they pay to the broker
The Broker should disclose the remuneration that they receive. This includes scenarios where the broker/retailer receives remuneration from a party other than the lender, such as another broker in the chain. This means that the broker and retailer are each responsible for disclosing the remuneration they receive.
It is the party that is making the remuneration/commission payments that should disclose the existence, nature and amount of remuneration
The disclosure should be displayed as a single £ figure, alongside the method of calculation.
If the exact amount to be paid is not known at the time of disclosure, the method of calculation and likely amount of the remuneration instead should be shown, if the estimate of the amount is reasonable, and the customer is informed that it is an estimate.
When should a retailer disclose the information?
This can vary by journey and product type, but as a general principle, the sooner the better.
Some repetition may be unavoidable given the risk.
Where should a retailer disclose the information?
Again, this can vary by journey, but ensure it is covered in documentation and scripts, including anything issued to the customer, your terms and conditions, FAQs about your service and scripting and staff training.
The consent form should be to the point and clear as we are looking to gain an informed consent from the customer. The lender and the dealer should have agreed by now the process. The consent form should provide an:
Acknowledgement of the role of the intermediary and that the commission arrangements have been explained.
A description of the role of the intermediary e.g. whether they are impartial, on whose behalf they are working, how their panel works, whether independent advice is being given.
A description of the nature of the commission arrangement and a statement of the amount (or likely amount) of commission.
An explanation as to whether the fee payable does or does not impact the amount to be paid by the customer.
A statement whether a fee is payable by the customer, and signatures by both parties.
We understand that who has the disclosure of the commission obligation within the broker chain is causing confusion in the market therefore we have invited Jo to summarise this again:-
Disclosure by the lender: This should be the commission paid by the lender directly to the broker. Disclosure of remuneration paid by the broker to another business (such as a retailer or another broker) should be made by each individual broker in the chain receiving a commission.
Each broker in the chain should disclose the commission that they receive. This means that each broker or retailer are each responsible for disclosing the commission they receive. In other words, this also means that each party making the payments should disclose the existence, nature and amount of commission the broker and retailer receive.
How is Auto Trader responding?
In light of the recent Court of Appeal decision, lenders and brokers now have additional obligations around disclosure of the existence, nature and amount of commission, and to obtain the consumer’s informed consent to the payment of commission. These obligations lie with lenders, brokers and retailers, and from the discussions we have held with many of the lenders that we work with, we know that many lenders are already changing their processes to ensure they can comply with these new obligations.
As a marketplace, we have a role to play in helping to make the car buying journey, including finance, as transparent as possible for consumers. In light of these rulings, we have released an updated finance hub to provide as much information to consumers as possible. We are increasing the prominence of commission information to consumers on retailers’ adverts on our platform and through the finance calculator and Deal Builder journeys. This clearly informs buyers of the existence and nature of commission and signposts that the retailer or broker will provide further information, including the amount and will obtain the required consent at the relevant point in the journey.
We understand that this is a challenging situation for all our partners and rest assured we are working hard to support the industry.
What changes are we making?
We are making information about commission clearer on the Auto Trader product page for Dealer & Partner Finance products and through the Deal Builder Journey. These two changes are both live on Web and mobile web and will go live on the Auto Trader mobile app week commencing 4th November.
Finance Calculators on the product page
Click on the image to expand to full screenThis visual shows the Finance calculator on the Auto Trader product page with the updated Commission information
Making information about commission clearer through Deal Builder
Below you can see visuals for each stage of the Deal Builder journey with clearer commission information at key points in the Deal Builder finance journey, including the estimate, quote and proposal stages. You will also see a link to a side panel FAQs which detail what commissions are, what a credit broker is, and how commissions work on Auto Trader
Click on the images to expand to full screenEstimates
Quotes
Proposal
