On the 15thof March 2018, the Financial Conduct Authority(FCA) released an interim report on its extensive investigation into motor finance.
The main points of the report revealed that:
· the recent growth in finance is led by customers who have reasonably positive credit histories and are generally capable of meeting their repayment obligations;
· arrears and defaults on repayments are typically low but have increased recently, especially among the 3% or so of borrowers with poorer credit ratings;
· careful management on the part of car dealers may be required if they are to avoid encouraging customers to enter more expensive finance agreements; and
· there is scope for improving customers’ access to information about car finance – through dealers’ and lenders’ websites in particular.
In the final part of their report – which is scheduled to be finished in September 2018 – the FCA says that it is focussing on whether firms:
· make sufficient checks on the affordability of car finance – especially for customers with poorer credit ratings;
· engage with and provide sufficient information to customers so that they are able to make informed decisions about arranging car finance; and
· adequately manage the risks inherent in the payment of commissions to dealers for arranging car finance at the point of sale (POS).
Car dealers and car finance at the point of sale
If you are a car dealer, the chances are that you facilitate sales by also offering car finance deals to your customers.
In a report dated the 9thof February 2018, the Finance and Leasing Association (FLA) found that the vast majority of car sales are made with the help of finance provided by dealers at the point of sale. Throughout 2017, 88.1% of new car sales were made with the use of such finance, said the FLA, whilst POS finance also increased by 12% in value for all used car sales during the same period.
Car dealers insurance
The interim report by the FCA already hints at one of the potential impacts of POS finance on your car dealers insurance.
As the FCA has noted, POS arrangements not only help dealers to make the car sales they need, but they also receive commissions from the lenders providing the finance. The arrangement can introduce a risk for the dealers concerned.
By facilitating car finance, dealers accept a responsibility for the credit facilities that are provided. Through that action, dealers may also be held liable when things go wrong, and a customer suffers a financial loss directly associated with the credit the dealer helped to arrange. If the dealer is found to be liable, he may be ordered to pay compensation.
This, in turn, has an impact on insurance for car dealerships– and the liabilities insurance they need to indemnify themselves against a range of potential risks.
As specialist brokers of motor trade insurance, Aston Scott is aware of the impact of the many liabilities you may face in your business operations – including those associated with your offering car finance at the point of sale.
To discover how we may help ensure that you remain adequately insured, therefore, give us a call today on 03300 085045 to discuss the range of services we offer.