In 2017 the FCA announced an exploratory review of the motor finance sector. It wanted to understand the use of motor finance products, and assess the sales process employed by firms and whether the products could cause consumer harm.
The review focused on four key areas:
Customer information – The FCA undertook 122 mystery shops of dealerships and brokers to see if the information provided to consumers was sufficiently clear and transparent. The FCA were testing to see if customers were presented with the risks and features associated with finance products.
Commission arrangements – The FCA analysed commission agreements and data provided by lenders. It wanted to see if commission provided by lenders to dealers incentivised behaviours that led to consumer harm. For example: higher APRs and the sale of products that did not meet the customer’s needs.
Responsible lending – The FCA undertook a survey of lenders and analysed data from the Credit Reference Agencies. It assessed the extent to which lenders were checking that customers could afford the motor finance being offered and were creditworthy enough to meet the monthly payments.
Unfair business practices – The mystery shops were also used to establish if dealerships were using any unfair business practices to sell motor finance to customers.