The UK auto industry is facing a decisive year. NACFB vehicle finance director Graham Hill speaks to Isabella Grotto about the industry, the role of the NACFB, and the organisation’s latest exclusive partnership
What was 2013 like for the UK’s motor industry?
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I think really 2013 was clearly the start of the recovery. We could see volumes of business in all the different sectors starting to improve. We certainly saw some increases in the vehicle finance sector. As an association we don’t have that many dedicated vehicle finance brokers at the moment but that’s something we’re addressing. 2014 is the year we start to move things forward.
Who does the NACFB serve, and how do you select your members?
We really came into the industry to look after the smaller brokers, the brokers that needed that extra little bit of support, a little bit of direction, and so on. But also to make sure that the people we brought on board were professional in their approach to the industry.
We try and make it as simple as possible to become a member of the association,
provided you can show a level of professionalism.
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By GlobalDataThe NACFB generates fees and income from the members. They have to pay their professional indemnity (PI) insurance, which is a group scheme which is offered at a competitive rate compared to the general market, and is for their protection as much as anything else, as well as providing a protection to the association. Members also pay membership fees, either annually or monthly.
We regulate all our members, and when anybody applies for membership they have to prove to us that they are eligible, in the sense that they have been trading for a number of years.
If not they can still apply, but they come in at an associate membership level. Once they’ve gone through a year or two of being an associate, they can ask to be granted full membership status.
Having to have professional indemnity insurance, I think, is something fairly unique. I don’t think it’s something other associations require of their brokers. We also have a very active training and education division.
What does the training and education entail?
Training and education is quite important to us because ours is a sector of the industry, as opposed to mortgages and so on, where most people do not come from the banking industry. A lot of the vehicle finance brokers come out of the vehicle sales sector, so their knowledge and experience of things financial is fairly loose.
So we’ve introduced several forms of training and development. We have our own continuing professional development training, which is 35 hours a year. We expect all our brokers to have prepared for and attended the meetings to cover the 35 hours. Much like any other professional body, continual professional development is important to our entire sector.
As far as the vehicle finance brokers are concerned, some of ours have already completed their training. This covers three main modules: ‘treating customers fairly’, ‘money laundering’ and ‘data protection’.
You have to study, then sit the exams, and then if you don’t pass you re-sit them.
These are three fairly basic exams, but it does give a level of credibility to any new patrons who may come in to the association and accept brokers.
Tell me about the role of patrons in the NACFB?
The patrons come in to support our aims and objectives of creating a professional association of members who treat customers fairly.
When the association was set up there was a lot of what they call ‘advance-fee fraud’ going on. There were a lot of brokers who would promise to lend customers money, but would then request an advance payment. Although in certain respects you can understand they would want some sort of payment to start going through the process, that sort of thing does encourage the grey element of the industry to come along and maybe charge for things they shouldn’t be charging for and then didn’t come up with the results.
And the NACFB pretty much single-handedly eliminated that from the industry.
So the patrons said: "Look, we agree with your objectives and we agree with the fact that you’ve got a complaints procedure and we like the fact that you’ve got your PI insurance," and agreed to join and pay an annual fee to be patrons of the association.
As a consequence, a lot of our income comes from our patrons, which is obviously useful, but more important for us is the fact that they support our objectives.
What advantages are there for lenders using NACFB brokers?
Some of the big banks and building societies now restrict all their broker introducers to just NACFB members, because of the way we regulate our members.
We’ve got a complaints procedure, so it shifts any potential problems away from the lender. If there is an issue with the broker it doesn’t go back to the lender, it gets picked up by the NACFB and we then investigate it.
We will then intervene if necessary, and the broker knows the ultimate action we can take is to throw them out of the association. So they are fairly careful. It does mean a lot in the commercial finance sector – we’re now just moving into the vehicle finance sector, which has taken a while to do.
So what have been the major obstacles in moving into the vehicle finance sector?
When we started to approach the vehicle finance industry, we ran into one or two difficulties because the approach is unique, and completely different to the mortgage industry, for example.
For instance, a big difference between the two is that mortgage lenders prefer broker-to-broker business, and they like to have
specialised brokers.
If I’m a broker who specialises in nursing homes I will know the lenders who will lend on nursing homes, and they will be different to those who will lend on post offices. If I’ve got an inquiry relating to a post office, such as someone’s bought a post office and they want to discuss raising the money with an expert in that field, that won’t be me, that will be another broker who specialises in post offices.
Now we’ve tried to do that in the vehicle finance industry, by trying to get master brokers and things like this, but we’ve really struggled and not been able to achieve it so far.
Last year we had reached a situation where we have a number of patrons, but no specialist in vehicle finance. We had asset finance patrons, but we really wanted a vehicle finance provider as a patron of the association.
And while it took quite a long time last year, we finally got an agreement together between ourselves and Lex Autolease, who have agreed to come on board.
So this is something that will be a big part of 2014?
Yes, and we’re going to see a change in attitude, with Lex as a new patron. Last year Lex increased its fleet by about 20%, and is looking to expand substantially more than that this year, and one of their routes to market is brokers. It will maintain its core brokers -they don’t have to be members of the association – but will accept business from NACFB brokers and this is the scheme that we’ve come up with to develop the relationship between us.
We’ve given Lex sole access to the association for two years. So it will constitute the only independent vehicle finance patron of the association for a two-year period, which commenced officially last November.
We’re going to be looking at what sort of returns we get, how it develops and so on, then we’ll knock it together and over the two-year period hopefully we will end up with a substantial increase in Lex business, because that will mean we’ve now got an introducer level.
So our brokers will now be able to provide leads into Lex, so when the company speaks to its customers they’ll now add another line to their email saying ‘we can now provide vehicle finance’.
Lex doesn’t get involved in the vehicle finance, and I don’t see it as a challenge to the vehicle finance brokers’ activity. If Lex have got a customer, why not make more money out of them, sell them another product; that product goes through Lex auto lease and as a result of that they earn some commission, while Lex increases its fleet size.
How will this benefit your broker members?
Now we come to the vehicle finance brokers who haven’t got a line into Lex at the moment, who would like a line into Lex, but it’s very difficult to get that.
Lex is the largest leasing company in the country and it is very selective, as are we.
As the partnership develops over the next two years, we expect a lot closer working relationship will result in our brokers being accepted onto Lex’s panel.
But that will only come in time, once the quality of the leads has been established. In the meantime, we’re experiencing this learning curve.
At the moment we are starting to introduce leads into Lex, as of last week we already have 24 brokers signed up to its system. We will also be doing a lot of promotion next year, and Lex is as well.
Moving onto this year, the first few months of 2014 have already yielded positive figures – what are your expectations and predictions for 2014?
I have spoken to a number of leasing companies, and their view is that there is going to be a lot more activity in 2014 into the consumer and the small business sector.
It’s the one area in which the industry lets itself down. You can understand that the easy targets for the large leasing companies are the large fleets, where you do one deal and you’ve got 500 vehicles or 5,000 vehicles, rather than dealing with SMEs where you might get one or two vehicles per company.
But you can see by the standard of the systems that are now available to these leasing companies the phenomenal developments that have taken place over the past two to three years.
Quotation times have dropped to minuscule levels. Whereas once upon a time if someone wanted a personalised quote it took ages to run through the systems, now it’s virtually instantaneous.
So we’re going to see a lot more activity in the area of things like apps, allowing people getting instant access to quotations from leasing companies and from brokers. I would imagine that the leasing companies will develop the apps and make those available to the brokers, who can then make them available to their own customers.
How do you think the planned FCA regulation will impact the work of the NACFB in 2014 and over the coming years?
Last year we were really starting to see the green shoots of recovery in terms of vehicle finance. We’ve still got a way to go, it’s still fragile – the reason why the sector was so successful last year was the fact that there were a lot of cars being dumped into the UK.
European manufacturers were not selling in Europe, so they were chucking them over here. And as a consequence the brokers did far better last year than they had done in the previous two years, or since 2010, which was a real low-point for the vehicle industry and for brokers in particular.
Now the FCA has added this new layer into the process, ‘knowing your customer’, and is going to be very focused on responsible lending and so on. My personal view is it’s going to cause mass problems if the result of what’s being done is that more people get declined for finance.
Why do you think it will cause problems?
Because if they tighten up on the payday lenders there is a risk that people will turn elsewhere.
The one area they are trying to get away from, when they originally allowed the payday lenders, were the guys at the corner of the road who were lending £100 and if you didn’t pay £200 at the end of the following week they turned up outside your house with a baseball bat.
People shouldn’t be able to get money just like that, but at the same time, if there are people out there who need money, they’ve got to be able to go somewhere.
So there’s no point in the government saying "we’ve got to stop this" without putting something in place which says "but what we’re going to do is provide this". They need to take it that one step further. These things are not thought through by the government. And that last bit isn’t being done. In my opinion there needs to be a lot more done in that respect.
So do you think that part of what we will see in 2014 will be the negative fallout of this FCA regulation, or do you think that’s further in the future?
As this develops, we’re going to see some changes. We’re going to see a few of the smaller dealers, the used car dealers and so on, withdrawing from finance.
And we’re going to see a growth in maybe the broker sector to support these people, because they’re at that tipping point already.
Certainly among the smaller dealerships and used car dealers in particular, we are going to see a move away from providing finance direct to the customers and more use of brokers, as providers will want to avoid the regulation and the potential checks that are going to be carried out on their practices.
This makes it a very difficult projection this year to say this is where we’re going. The objective of a number of leasing companies is to increase their sales substantially.
And they’re confident that will happen despite the changes in regulation?
Yes. I mean, as far as they’re concerned, they’ve always done everything correctly, they’ve always lent responsibly, so they’re quite happy with the results they’re achieving; they just want to increase the numbers.
So they don’t see any major changes to the way they transact their business. Yes, there may be a couple of extra checks and so on to be put in there, and a few more boxes to tick, but from their perspective, they don’t see any major changes.
It’s mainly going to be in the consumer sector that I think we’re going to see a move towards the brokers, and even the brokers are confused as to what categories on the consumer credit license they need to tick.
One last question regarding the regulation itself, what are your thoughts on the number of brokers that might be pushed out of the market because of the FCA regulation?
I think there will be fewer that will leave the market than was anticipated. They will have a way of dealing with this at the end of the day.
I think they will realise that the real emphasis, and the real objective, is to clean up the short-term lending sector, as well as other fringe sectors that have seen money laundering and so on. But we don’t see that as a big problem; we never have seen it as a big problem in the vehicle finance sector.
I think that when the thing is all rolled out and we finally find out exactly what the changes are, we’ll see they are probably fairly minimal in practice.
And we’re going to end up with probably roughly the same number of brokers, possibly even more.
Yes, there was a knee-jerk reaction, I think we all did that. And I’m still cautious. I am still nervous about how this is going to roll out.
