The European Consumer Credit Directive (CCD) has the potential
to bring about significant changes to the way dealers and finance
companies provide funding to vehicle buyers.
As well as complying with the new rules contained
in the CCD, the industry will also have to take account of new
guidance on irresponsible lending – due to be issued by the Office
of Fair Trading (OFT) in March.
Together, the CCD and the OFT guidance will require
motor finance providers and intermediaries to make changes to key
aspects of their pre- and post-sale practices.
These will include, among other things, advising
customers about the different financing options that they can
choose from. In some cases, providers may have to investigate
customers’ financial situation more carefully in order to be
satisfied that the customer will be in a position to make
repayments throughout the duration of the finance contract.
While businesses rarely welcome new regulations
with open arms, neither the CCD nor the OFT guidelines, of
themselves, are necessarily a bad thing.
Indeed, by more clearly defining what are
considered to be bad lending practices (and threatening such
practitioners with withdrawal of their credit licence), the OFT
guidelines may well help to reduce the level of unfair competition
suffered by genuinely customer-focused retailers.
Uncertainty remains
Nevertheless, there is understandable
concern among lenders and intermediaries over some aspects of the
new rules, such as disclosure of commission and customer
cancellation rights.
The CCD and OFT also contain phrases such as “in
good time” and “in a personalised manner” in relation to giving
customers pre-contract information, but no one yet knows precisely
what they mean.
No one has yet seen the definitive text of either
the OFT guidance or the UK regulations implementing the CCD, even
though the guidance is due to come into effect in March and the CCD
is scheduled to be enacted into UK law in June.
At this late stage, any ambiguity is bound to
heighten tension and uncertainty. However, as has often been
demonstrated in the past, the impact of new regulations and
guidance often turns out to be less severe than people were
expecting.
Compliance is always a concern when new regulations
are brought in. Businesses worry that they could end up being
hauled over the coals for inadvertently failing to comply due to
ambiguities in the interpretation of the new regulations, or that
others in the industry will implement the new regulations in a
different way, leading to an unlevel playing field, or that new
compliance procedures will be so onerous that it will make it
almost impossible for them to do their job.
I can see why such concerns might arise, especially
as the new rules will definitely affect the way the industry
traditionally qualifies customers and recommends finance
products.
Having studied the drafts carefully, however, I am
confident that dealers who already have good qualification
processes and a customer-centred approach to sales will find that
they have very little to worry about – particularly if they work
with finance companies that also have acceptance criteria which
ensure responsible lending and onward management of their
borrowers.
The author is director of Alphera,
the multi-make retail finance arm of BMW Group Financial
Services
• Future articles in this series will look in
detail at the draft OFT guidance and the UK regulations
implementing the Directive, to see how they are likely to affect
relationships between customers, retailers and finance
companies