If there was a consistent theme to the Finance &
Leasing Association’s 8th Annual Motor
Finance Convention this month, it was to survive, to do it right,
and to be aware of legislation.
Richard Brown was at the Heritage Motor Centre in
Warwickshire.
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Chris Sutton, Finance and Leasing Association (FLA)
chairman and managing director of Black Horse Motor Finance, set
the tone in the convention hall.
“Talk of another credit crunch is
not fantasy,” Sutton warned.
Ruth Lea, economic advisor at
Arbuthnot, explained just how tough things could get.
Growth, she said, would probably be
less than 1% in the UK for 2011, with investment subdued,
consumption down, unemployment up, and a shrinking housing
market.
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Extraordinary
times
With inflation high, but predicted
to come down, and interest rates expected to remain low until 2013,
Lea concluded “we are living in the most extraordinary times”.
There was, however, a mood of
self-belief, even optimism, among many speakers.
Simon Barrass, group F&I
manager for JCT600, spoke of the need to embrace personnel
development and compliance investment as two healthy buttresses to
a dealership.
Positives
Indeed, FLA director general
Stephen Sklaroff opened the day with positive industry
figures
for association members, and said the car finance sector was doing
“much better than just surviving”.
Sklaroff, however, warned that new
regulation proposed to supplant the Consumer Credit Act (CCA) or
Directive (CCD) could be yet another obstacle for the market.
James Baird, partner at Gateley,
explained that section 145 of the CCA defined brokers as those who
make introductions to obtain credit, even if they are dealers; and
intermediaries as those who are not creditors but prepare
agreements.
Simon Rawle, a banking and credit ombudsman with the
Financial Ombudsman Service, explained that, in the “vast majority”
of finance sales, the dealer introduces the consumer to the finance
provider, acting as a credit broker. As such, they are not liable
or responsible for the representation of finance.
Under HP or conditional sale, Rawle
elaborated, it is the creditor or finance provider that is
liable.
But where all or part of finance is
transferred by a lump sum or credit card, he said, the finance
provider and dealer are equally liable.
“I can fully understand why
consumers are confused,” Rawle concluded.
Consumers are not the only ones
confused. According to Baird, and in agreement with Sklaroff’s
concerns, recent guidance fails to accommodate the nuances of a
highly intermediated market and both “treats credit and hire as the
same thing” and “merges the law a bit”.
Crucially, s25 of the Act allows
the Office of Fair Trading (OFT) to withhold credit licences to
those businesses where practice is “otherwise unfair or improper
(whether lawful or not)”, something Baird said was a “sneaky” way
for a licence to be refused or approved.
In practical terms, Nicki Rose,
lead officer for banking and credit at the Trading Standards
Institute (TSI), told delegates that OFT guidance and TSI demands
for transparency meant: “Tell people what they are getting. They
want the industry to self-regulate. People still get quoted flat
rates, not APR.
“If you deal with your customer
right, what am I going to do? I’ve got better things to do!”
continued Rose, who added that 12% of complaints received by TSI
were about cars, representing around one in every 2,000 vehicles
sold.
“Against turnover, it’s minute –
but the total number becomes oppressive,” Rose continued. “One of
the reasons we work with companies is that complaints still
represent quite a bit of our time and your time.”
Alleged false
claims
Rose said most complaints to TSI
stemmed from alleged false claims on the part of the dealer and,
therefore, a lack of transparency or explanation of financial
products, such as new withdrawal provisions, which customers and
dealers alike had failed to understand.
“I am still disappointed that there
are businesses that don’t understand they are responsible for the
quality of goods,” added Rawle.
“There are too many cases with
scant evidence and we have to decide on the balance of
probabilities. The worst examples are where the consumer complains
to the finance provider, the finance provider says ‘go back to the
dealer’, payments stop being made, the car is sold at auction and
we don’t even have a vehicle to inspect.”
Comprehensive industry
code
To help ease such situations, Nick Dawes, the TSI’s lead
officer for the motor trade , explained how the body would soon
establish a business education role and a comprehensive industry
code “owned by different bodies” including a new kite mark, be it
TSI, British Standards Institute or Which?, and a TSI
policy board for local enforcement.
Rose advised dealerships to pay as
much attention to civil legislation as criminal legislation when
complying with credit regulation.
“The OFT is very active at the
moment enforcing regulation. It is not an offence to breach the
Sale of Goods Act, but it is unfair.”
Though Carcraft was not mentioned
by any speaker, the name hung around the informal conversations of
delegates.
Having been found lacking in
explanations of terms and conditions, the car supermarket was
publicly admonished by the OFT though not found guilty of operating
illegally.
Baird accused the regulator of “stretching the elasticity of the
law” in a market with variations in consumer knowledge about
products and denied the current draft guidance would deliver a
“predictable or just” version of the law.
