Having taken effect a little over three months ago, the Consumer Duty requirement to protect customers, including those who are vulnerable, should now be a key focus for all motor dealers and manufacturers in the UK who offer finance. But how well is the automotive industry doing with its customer vulnerability identification under the Duty? And what more needs to be done?
Vulnerability identification in line with Consumer Duty
Consumer Duty has a fundamental impact on all automotive firms providing regulated financial products or services to consumers. This also includes a wide range of vehicle add-on products, from asset protection to cosmetic damage cover. In short, if a consumer is buying a new car, the automotive firm will likely need to assess the customer to understand whether they are at risk of vulnerability. The Duty requires firms to act to deliver good outcomes for their retail customers, and of course, keep them safe in what are clearly pretty testing times.
Whilst we are starting to see some real traction in the financial services and wealth space when it comes to vulnerability assessments under the Duty, there still seems some way to go for the automotive and leasing industry. But let’s be fair here, this process is no easy feat. We are all too aware that this is a relatively new working practice for many in the industry and that changes like this can take time.
Certainly, one of the key misconceptions we have witnessed from the automotive industry so far is that customer vulnerability identification is time-consuming and will negatively impact the sales journey. Many dealerships have admitted to us that they are concerned that customers will not want to engage with the process and fear that the ‘extra questions’ may well lose them sales. But this is far from true. Even though its early days, what we are hearing from our clients is that the vulnerability identification process is actually quick, simple, and most importantly doesn’t impact the sales journey in the slightest. In fact, many automotive professionals we are working with right now have maintained that the process has actually allowed them to get to know their customer better and enables them to provide a better and safer service overall. Many have also acknowledged that they haven’t had any concerns from their customers either, which is reassuring.
Not once and done
The FCA recently gave an update on how firms have been faring with the Duty. It stated that many firms have made a real shift in their practices and culture. There are certainly a few key organisations and industry bodies in the automotive space who are doing just that, which is a great start. However, the regulator also gave a stark warning that the Consumer Duty is not a “once and done” exercise. It maintained that firms need to make sure they are learning and improving continuously and will need to evidence this in their annual board report.
The FCA also reminded us that the Duty isn’t something where you can tick the Consumer Duty box on your to-do list and move on. As Nisha Arora, Director of Cross Cutting Policy and Strategy, FCA explained, “it’s something that needs to become part of who you are as a firm, your culture, and how you do business, running across your whole organisation from Board to front-line delivery, from product design to communications and customer support.”
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Why hard data is key
Prior to the arrival of Consumer Duty, it’s fair to say that very few in the motor industry conducted regular analysis of hard data on vulnerability. The reason for this was simple – very few actually had any hard data. Those that are starting to make traction now, therefore, are starting to build up some of this valuable data. And as such, three months in, we believe that there’s an opportunity for these firms to assess what they’ve gathered so far, take stock, and see if their target market assumptions are playing out as expected. They could also look – if vulnerability has been identified – at how well that individual customer has actually been supported. With this knowledge, they can then determine whether their preparations were fit for purpose or if there are changes required and then develop from there.
Data is key here. The regulator is not expecting a transformation overnight, but it is expecting dealerships and manufacturers to build their banks of vulnerability data and learn and adapt based on this.
It’s time to act now
There may be some dealers and manufactures who may feel that they don’t need to change their ways of working in line with their Consumer Duty obligations just yet. Perhaps they think that being smaller means they’re safe from the Duty, but this is a dangerous misconception. While it may be true that the FCA will focus most of its attention on the largest automotive players, the regulator has been very clear that there will be no exceptions made.
To put it simply, anyone who believes Consumer Duty isn’t being monitored or that they aren’t being monitored is sorely mistaken. And while we have yet to hear of the FCA hauling anyone over the coals (across any industry), it’s sure to be only a matter of time before someone trips up and an example is made of them.
We’ve spoken before about how the FCA never meant for the 31st July to be treated as a finish line. And they have said it themselves too – it’s not a “once and done” exercise. Rather the regulation is intended to be the firing of a starting pistol; marking just the start of a broader conversation on vulnerability. And so, whilst we appreciate the difficulties of the automotive sector and how hard this process can be, there is help out there to make this as simple and painless as possible for both the industry, and indeed, the customer too.
Jonathan Barrett is the Co-Founder and Managing Director of Comentis, a provider of digital assessment tools to identify and support vulnerable customers or service users.