Jonathan Minter reports from the first Moneybarn event for car finance intermediaries
On 19 September, subprime car finance provider Moneybarn held its first conference for its brokers at the Birmingham Marriot Hotel, to discuss the transition of consumer credit regulation to the Financial Conduct Authority (FCA) and issues regarding satisfactory quality (SQ).
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Hosting the day Shamus Hodgson, sales director at Moneybarn, was pleased with the company’s inaugural event and said it would consider hosting future conferences on topics felt to be useful for or by its brokers.
Both the FCA and SQ have caused some confusion within the industry, and the conference featured legal and industry speakers on both topics to advise attendees on how to deal with them.
Bally Pone, customer service manager, Moneybarn
Pone has been with Moneybarn since December and heads the company’s customer service team, created in January 2013. Part of her and the department’s role is to increase the level of engagement with customers during the course of a finance contract, as opposed to the very start or end, when the vast majority of interaction had previously and typically occurred. The team also deals with Moneybarn’s SQ process, and Pone demonstrated its three-stages as an example for others to consider when formulating an SQ strategy.
The first stage involves investigating the SQ report. An SQ can be any one of a number of issues, the department has an in-depth checklist of possible problems to speed up the process and aims to update the customer on the status of their complaint within 48 hours. If there is an SQ debate, Moneybarn uses an independent inspection team to resolve the situation.
If Moneybarn feels the claim is not legitimate, the customer has the opportunity to take the case to the Financial Ombudsman Service (FOS) to arbitrate whether the fault lies under SQ. If there is a legitimate claim, the customer is asked what they want to do, at which point the customer can either ask for the vehicle to be repaired or reject the vehicle. In most cases, the customer chooses the former, Pone said.
Under SQ, the responsibility for repairing the vehicle lies with the dealer, however dealers are often not aware of their responsibility, added Pone, sometimes resulting in delicate negotiations. If a customer wishes to reject the vehicle, Moneybarn will unwind the contract. However the customer will need legitimate cause for this, and for the majority of the time, if Moneybarn acts swiftly, the customer will not choose this option.
Karen Brown, managing director, Addleshaw Goddard
Brown discussed the legal framework of SQ, which was created under the Sale of Goods Act, 1974 and then updated in 1994, and again in 2002. SQ can cover areas broadly defined as the ‘quality’ of goods, including fitness for purposes, appearance, safety, durability and freedom from minor defects. As some of these may be subjective, for the purpose of SQ customer expectations and their right to claim needs to be dictated by an objective standard of reasonableness. Therefore, Brown explained, SQ is relative to price, age and the circumstances of a car: Minor defects a customer might reasonably expect from a brand new prestige car will differ tremendously from minor defects found from an average second-hand runaround.
Neither does SQ cover faults the customer is made aware of before the contract. Hence a test drive might make them aware of certain aspects. However, Brown advised strongly against relying on this as a sole method, and instead suggested making sure there was a record of customers being made aware of any faults.
Because of this, said Brown, "decisions are not easy to predict" if and when an SQ issue progresses to the FOS. On top of which, it is a customer’s statutory right for a refund if a car has a defect the customer was not aware of at the time of purchase, and companies which claim "We don’t give refunds" may be acting unlawfully, she warned.
Brown’s overriding advice was to resolve SQ issues as soon as possible. Customers can claim for consequential losses such as a replacement hire car. Companies may face a double impairment if the process of replacement or repair is too long and inconvenient, as a customer may be able to claim for the vehicle with a discount while the faulty vehicle will be depreciating the whole time the claim is going on.
Finally, Brown reminded attendees the FOS is an arbitrator, not bound by laws in the same way a court is, and will try to side with what it sees as fairness, but charges the dealer or lender £500 regardless of the outcome. It is therefore better to attempt to deal with these cases as soon as possible, rather than let the situation escalate to the point of arbitration by the ombudsman.
Paul Harrison, head of motor finance, FLA
Harrison began with his key piece of advice regarding the change of consumer credit regulator: "Get to know the FCA, because they are going to get to know you."
He then traced the creation of the FCA back to the 2010 Conservative election manifesto and the programme for government agreed by the Coalition administration, which named banking as its number one priority, both of which explicitly mentioned improving financial services. Harrison pointed out politicians are yet to provide a clear statement on the problem the new regime is designed to deal with and suggested it was a case of politicians wanting to look like they were responding to the crisis, with consumer credit appearing to be an afterthought once the banking sector was addressed.
Harrison warned the FCA will be more proactive than the Financial Services Authority (FSA), which would lead to the body being more invasive, underlined by a quote from a speech by Martin Wheatley, chief executive officer of the FCA, who promised "we’ll be tough, and yes, I hope that’s a legacy".
Harrison was also keen to show the differences between the Government’s original intent in 2010, and the current plan. A plan to extend minimum capital requirements currently in place for banks to all forms of finance provision and financial services was outlined three years ago, but has since been dropped, as was a requirement for appointed representatives for credit providers.
The FLA also successfully lobbied for the FCA to operate under the framework of the Consumer Credit Act (CCA), as apposed to the Financial Services and Markets Act, delayed a full review of the CCA to a time frame the Association believed was more reasonable, added a ‘lighter touch’ period at the start of the FCA’s role for two years, and also achieved several other changes to the original plan.
Harrison said there were still remaining challenges, including clarification of licencing requirements, spreading awareness of the changes to the consumer credit industry, and the predicted 20% of firms that will leave the industry as a result of changes being made, according to the FCA’s own impact assessment.
Beyond which, for Harrison, there were still questions about the funding model of the FCA, as well as its level of expertise and readiness for its role.
Stephen Dawson, partner, Shoosmiths
Dawson described the new regulatory body as a conduct or behavioural authority, saying "conduct risk is the concern of the FCA", something, he noted, which had not concerned its predecessor, the FSA.
The FCA will provide "pre-emptive supervision", meaning "there doesn’t have to be an identified, quantitative issue for the FCA to act", he said. It will assess risk, and prioritise action based on risks.
Dawson added the FCA will act on the presumption it can make decisions in the name of the customer. In other words, he said, "the customer isn’t always right".
Dawson’s primary piece of advice echoed that of Harrison: "Don’t bury your head in the sand, you’re going to have new responsibilities."
Further to this, he recommended companies allocate responsibility in advance, and ensure they were aware which individual employees would deal with compliance. Dawson appreciated this would be difficult for delegates but urged them to invest time in understanding the changes and not be stranded out of their depth.
He also encouraged attendees to respond to requests for information and act quickly. Doing so could be aided by simplifying business conducted and using the time to deal with any problems previous overlooked or not dealt with in their companies.
Using the Moneybarn seminar as an example, Dawson advised the audience to ensure companies they worked with were also aware of the changes. Checking associates were reputable was a key point, as the FCA would no longer allow online checks for licences.
Concluding, Dawson said although such changes would provide an inevitable challenge for those in the industry, for those companies prepared for the change it provided an opportunity for growth, especially if 20% of the market ends up leaving.
His final piece of advice was to "step back, consider your attitude. I suggest you embrace the change".
Bill Scotney, head of corporate risk and compliance, Moneybarn
Like Dawson, Scotney said of the changes: "This is scary stuff, but this is an opportunity", and drew attention to the discount for application for an FCA licence before 30 November.
However, he did advise waiting until after the draft rule book has been released, currently due on 27 September 2013, and to read it before applying for a licence.
Scotney said the change of regulator will switch the focus onto internal control. Because of this, the coming regime will expect to find systems and controls in companies, with responsibilities put on senior management and approved persons, and an embedded and demonstrable culture of Treating Customers Fairly (TCF). For this reason, he suggested being systematic about the change, and to keep records of everything.
Moneybarn has been following this advice, and is in the process of reviewing and refining all processes and procedures which could impact the customer. There is an ongoing internal audit of the company’s adherence to the process, and the findings will be reported to senior management.
Scotney also believed the fallout rate suggested by the FCA may not be entirely accurate and could actually be higher than 20%. He also recommended changes to documents and websites should be prepared well in advance as, depending on the size of the company, the move to the FCA could require a substantial amount of literature to be rewritten.
Finally, Scotney announced, as of 28 February 2014, Moneybarn will not be accepting any deals delivered by brokers who do not have the correct licence, as doing so would be compromising Moneybarn’s own compliance, and suggested other attendees took a similar, firm stance with third parties.
