Has Fca Intervention Damaged the Market for Gap Insurance?

www.motorfinanceonline.com Issue 178 / september 2019

BREAKING COVER HAS FCA INTERVENTION DAMAGED THE MARKET FOR GAP INSURANCE?

FEATURE OPINION ROUNDTABLE

The benefits and limitations Defeating a claim that Government transport of credit scoring, and their sought to interfere with a figures discuss obstacles on effect on motor finance client’s right to possession the Road to Zero

MF September 178.indd 1 20/09/2019 11:46:01 contents this month

COVER STORY NEWS 16 05 / EDITOR’S LETTER 06 / DIGEST • Lookers outlines £10m remedial plan ahead of FCA investigation • VW-backed used car platform Heycar launches in UK • Cazana and Experian launch dealer pricing and provenance platform • BMW Group launches pay-monthly service plans • Santander Consumer Finance rolls out online loan applications • Daimler leads £25m investment round in Carwow platform • Startline: flexible motor finance key in event of hard Brexit • V12 Vehicle Finance goes live with wholesale platform • Mobility tech provider Fleetondemand acquires FleetEurope • FLA: consumer car finance market dips GAP INSURANCE 3% in June 21 / DATABANK Editor: News Desk: Publishing Assistant: Brian Cantwell +44 (0)20 7406 6538 Asena Değirmenci +44 (0)20 7406 6705 +44 (0)20 3096 2633 Group Editorial Director: [email protected] [email protected] Ana Gyorkos Senior Reporter: +44 (0)20 7406 6707 Director of Events: Chris Lemmon [email protected] Ray Giddings +44 (0)20 7406 3723 +44 (0)20 3096 2585 Sub-editor: [email protected] [email protected] Nick Midgley Reporter: +44 (0)161 359 5829 Head of Subscriptions: Christopher Marchant [email protected] Alex Aubrey +44 (0)20 7406 6709 +44 (0)20 3096 2603 Sub-editor: [email protected] [email protected] Sophia Bell 07 Customer Services: +44 (0)20 3096 2603 or +44 (0)20 3096 2636, [email protected]

Financial News Publishing, 2012. Registered in the UK No 6931627. ISSN 1748-1333 Unauthorised photocopying is illegal. The contents of this publication, either in whole or part, may not be reproduced, stored in a data retrieval system or transmitted by any form or means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers. For more information on Verdict, visit our website at www.verdict.co.uk. As a subscriber you are automatically entitled to online access to Motor Finance. For more information, please telephone +44 (0)20 7406 6536 or email [email protected]. London Office: John Carpenter House, John Carpenter Street, London EC4Y 0AN Image resources: shutterstock.com, Headline Auto

follow mf on twitter @motorfinance

2 | September 2019 | Motor Finance

MF September 178.indd 2 20/09/2019 11:46:03 contents september 2019 11 19

OPINION 19 / BERMANS Bermans Solicitors recently represented a captive motor financier in defeating a claim by administrators which sought to interfere with a client’s right to possession of a vehicle. FEATURES Ian Munford and Andrew Henderson write 11 / CREDIT SCORING 16 / GAP INSURANCE 20 / SHOOSMITHS Consumers and lenders alike are becoming It has been a turbulent period for guaranteed Mel Chell, partner and head of asset- increasingly aware of the importance of credit asset protection (GAP) insurance, with recent based lending recoveries at legal practice referencing, but what are the limits of this FCA intervention forcing change on the Shoosmiths, discusses a point of case law process, and how will they affect the motor market and causing shifts in consumer and that could affect funders and OEMs over the finance sector? Chris Farnell writes dealer behaviour. Chris Lemmon writes consumer’s right to reject a faulty vehicle 14 / CENEX ROUNDTABLE Figures from government transport departments met in London to discuss the future of mobility in the UK, and the obstacles to achieving the Road to Zero targets. Chris Lemmon reports 16

www.motorfinanceonline.com | 3

MF September 178.indd 3 20/09/2019 11:46:06 HEAR • NETWORK • DISCOVER • CELEBRATE Leasing Life Conference & Awards 2019 Barcelona, Spain • 28 November 2019

For its 15th edition, the Leasing Life Conference and Awards 2019 moves to Barcelona, to bring together asset finance professionals and industry disruptors in an active discussion of the key issues facing the leasing industry. This year’s Leasing Life Conference explores how Europe’s leasing industry is responding to the value chain opportunity, the role of technology in this pinnacle transformation, strategy-driven innovation and much more. Thriving in a digital age has never been more important.

Event highlights • Embracing technological transformation: creating digitised business models • From new technologies to corporate cultures: making innovation a reality • The circular economy: driving change at full speed • CEOs panel discussion and Q&A: the future of asset finance – a strategic outlook • Remaining relevant in an increasingly competitive world • Panel discussion: capitalising on data to drive industry-wide innovation

Headline Partner Gold Partner Silver Partners Bronze Partners

Exhibitors Panel Partner Cocktail Partner Table Host Badge and Lanyard Partner

For more details please contact Ray Giddings on [email protected] or call +44 (0)20 3096 2585

MF September 178.indd 4 20/09/2019 11:46:06 editor’s letter

HEAR • NETWORK • DISCOVER • CELEBRATE Editor’s letter Leasing Life Conference & Awards 2019 Barcelona, Spain • 28 November 2019 market-led answers

For its 15th edition, the Leasing Life Conference and Awards 2019 moves to Barcelona, to bring to market issues together asset finance professionals and industry disruptors in an active discussion of the key Brian Cantwell, Editor issues facing the leasing industry. This year’s Leasing Life Conference explores how Europe’s leasing industry is responding to the value chain opportunity, the role of technology in this pinnacle transformation, strategy-driven innovation and much more. Thriving in a digital age has never been more important. his month there is a rare insight into commission for related introductions, although not how Event highlights regulatory crisis management as we report much – which is the current regulatory level. Clearly, on how car dealership Lookers has put aside finance was conducted that was not of a sufficiently high • Embracing technological transformation: T £10m to cover regulatory costs to its business standard. creating digitised business models following the announcement that it is to be There have been several initiatives to drive up dealer • From new technologies to corporate investigated by the FCA. standards, with Alphera and the IMI providing a cross- cultures: making innovation a reality As more details were revealed about where the money business offering for dealer standards, and the Finance • The circular economy: driving change at would go, particularly relating to its sales process, it also and Leasing Association also offering a standards-based full speed provided an insight into what the FCA is focusing on. training course. It may be that the behaviour that triggered • CEOs panel discussion and Q&A: the future According to Lookers’ remediation plan, the £10m will the interest from the FCA is a historical issue – or, at least, of asset finance – a strategic outlook cover a detailed review of past business, the establishment has stopped – but the £10m initiative is likely to be way • Remaining relevant in an increasingly of a revised sales process with a full training exercise across more effective in changing the future of the business than competitive world the group, establishment of a new risk-management and punitive action from the regulator. • Panel discussion: capitalising on data to quality-assurance framework, and several developments to As is demonstrable across financial services, market-led drive industry-wide innovation the group’s IT systems. answers to market issues are the most definitive answer to Lookers offers car finance via HP, PCH, PCP and personal the technical and practical questions facing motor finance loan, and its website states that it has a panel of 14 lenders businesses. This is why the motor finance review was to supply it as a broker. The site also explains that it caters important: the changes that the market can make from the for the subprime market, giving a rundown of how credit recommendations will be far more effective and far less profiling works, including details of a minimum earnings harmful than regulation imposed from above. threshold of £850 per month, and offers an APR of 27.9% This is the position that the FLA has taken in its for car loans. consultation with the FCA prior to the report’s delivery, Weirdly, the section of the Lookers website titled pushing for self-regulation to the issues that were raised in Finance and Dealer Disclosure links only to its motor finance the report. product suite, and not any information about the business So, action like that of Lookers can only strengthen the Headline Partner Gold Partner Silver Partners Bronze Partners as a finance broker. However, in its terms of business it idea that the motor finance market is one that can move does mention the usual T&Cs about credit broking and with the times. <

Exhibitors Panel Partner Cocktail Partner Table Host Badge and Lanyard Partner

Get in touch with the editor at: [email protected]

For more details please contact www.motorfinanceonline.com | 5 Ray Giddings on [email protected] or call +44 (0)20 3096 2585

MF September 178.indd 5 20/09/2019 11:46:06 News | Digest

news update Lookers outlines £10m remedial plan ahead of FCA investigation the retail motor industry and the fast pace of changing customer demands and behaviours, is a key challenge and an important priority for the group. When these improvements are fully deployed across the group, our strengthened infrastructure and enhanced customer experience will create a robust and industry-leading platform that will facilitate further growth.” Lookers said pre-tax profits were down 39.7% to £2.6bn in the first half of 2019. Like-for-like gross profits on new and used cars were down 2.2% and 2.8% respectively, while gross profit on aftersales was up 2.9%. Lookers chief executive Andy Bruce said the performance for the first half reflects an Car dealership group Lookers has revealed The FCA told Lookers in June that ongoing backdrop of challenging UK market a £10m cash investment as part of a it would be investigating the firm’s sales conditions for the sector. remediation plan following the Financial processes between the period of 1 January “While we are reporting lower profits year- Conduct Authority’s (FCA) decision to 2016 and 13 June 2019. on-year, we have made good progress on a investigate the firm. The Lookers board said at the time that number of strategic initiatives and have a clear The £10m remediation plan will include it had uncovered “certain matters requiring investment plan to restructure and strengthen a detailed review of past business, the review” in its 2018 annual accounts, of which our regulated activities,” Bruce commented. establishment of a revised sales process, it then commissioned an independent review “Our balance sheet remains strong, a full training exercise across the group, in December 2018. including our valuable property portfolio. establishment of a new risk-management Lookers said in a statement: “The board Working closely with our brand partners, and quality-assurance framework, and several takes this matter very seriously and continues I am confident in the business’ long-term developments to the group’s IT systems. A to co-operate and co-ordinate fully with prospects. The board’s current outlook for the one-off £7m investment will be made in the FCA. We believe that adapting to full year at the underlying profit before tax 2019, followed by a further £3m next year. developments in regulation, which affects level remains unchanged.” < VW-backed used car platform Heycar launches in UK Heycar, an online marketplace for used player in the local market. The UK business burdened with rising fees for listing used cars, has opened in the UK following its will look to build on this success in the cars online, which squeezes their margins launch in Germany in 2017. brand’s second European market. without a guarantee of leads or sales Backed by Volkswagen Financial Services The marketplace has been designed to being generated. We’ve developed Heycar and Daimler Mobility, Heycar will launch overcome consumer scepticism toward to solve these pain points. We’ll offer a with an inventory of more than 100,000 used car sales. Users can search for and simpler, more effective solution for both listed vehicles from over 50 automotive find their used car, complete with a finance used car buyers and dealers.” brands at 1,400 dealerships. Every vehicle quote through the site. Moakes added: “Our site will be ad-free, listed on the platform comes with a Heycar chief executive Mat Moakes said: improving transparency and consumer warranty, has fewer than 100,000 miles on “The UK used car industry is worth £50bn, trust. Heycar won’t charge dealers a listing the clock and is less than eight years old. yet it works inefficiently for consumers fee, encouraging them to display all their Since launching in Berlin in October and dealers. Buying a used car can be like best-quality stock. After the launch phase, 2017, Heycar has built up an inventory of a lottery, you don’t know what you’ll get. we will charge on a lead-generation basis around 400,000 used cars from over 4,000 Existing websites are often cluttered with to guarantee a win-win situation for our dealerships in Germany, making it a leading ads, eroding consumer trust. Dealers are dealer partners.” <

6 | September 2019 | Motor Finance

MF September 178.indd 6 20/09/2019 11:46:08 News | Digest

Cazana and Experian launch dealer pricing and provenance platform Cazana and Experian have launched an respond to changes in the market, and “We’re extremely happy to be making online platform for motor traders to price increase profitability. our real-time market data and insight vehicles and carry out checks of their This is the second partnership entered available to more dealers to help them provenance. into by the two companies, having maximise profitability in this fast-changing The platform combines Experian’s previously brought forward their reseller market,” Wood added. AutoCheck system with Cazana’s agreement in the UK financial services Lisa Fretwell, managing director of Companion pricing tool, offering dealers a and banking sectors to help lenders make data services at Experian, added: “We’re single product for vehicle acquisition and better-informed risk decisions on vehicles excited to be working with Cazana to bring pricing. The product has been designed they finance. a product to market which can make a to offer dealers real-time insight on which “This product launch is testament to difference to dealers’ bottom lines. Motor cars to buy, their provenance and how the hard work of the Cazana and Experian traders need high-quality data at their to price vehicles appropriately to attract teams over the past 12 months,” said fingertips to make the best decisions when consumer demand. Cazana chief executive Tom Wood. deciding which car to buy. Dealers will also gain access to Cazana’s “While Cazana’s data is already used “The service we have created by teaming valuation and vehicle market research within many of the top dealers in the up with Cazana will help dealers get an technology. These stock insights and country, this new product elevates edge on the competition by providing pricing data are designed to help retailers Cazana to being one of the largest vehicle real-time information on which cars they target the right vehicle models to stock, valuation providers in the UK. should put on their forecourt.” < BMW Group launches pay-monthly service plans BMW Group UK has rolled out a pay- monthly plan for sales and services customers, with a view to improving customer retention and satisfaction rates. Launched in collaboration with EMaC, the new service has been designed to provide customers with added convenience and flexibility. Customers will be able to spread service and maintenance costs, while the agreement can be amended if the customer chooses to replace their vehicle. Yvonne Holden, general manager of aftersales at BMW Group, said: “Our pay- monthly programme is a fundamental part of our service product portfolio. “As customers continue to demand increased flexibility, our partnership with EMaC allows us to market a product which offers more flexibility and convenience than ever before, as well as additional The new certification programme offers who have responsibility for assessing in- added value such as a free MOT.” expertise and training for BMW Group depth criteria for every potential customer The launch comes as part of a two-year senior underwriters. Participants will wishing to finance their car,” said Amanda partnership between BMW and EMaC, improve their ability to accurately assess Powell, head of new business at BMW which has been developed to deliver customers’ current and future financial Group Financial Services. innovative service plans, retailer support situations. BMW said the course was “We are proud to be the first lender in and consumer solutions. launched to reaffirm buyer confidence the industry to offer IMI certification of In July, BMW rolled out an Underwriting in the motor-finance-application and this type, with the thorough assessment Excellence and Responsible Lending affordability-assessment processes. programme ensuring our underwriters will Programme in partnership with the “There are many highly experienced continue to work to the highest possible Institute of the Motor Industry (IMI). professional underwriters on our team standards.” <

www.motorfinanceonline.com | 7

MF September 178.indd 7 20/09/2019 11:46:10 News | Digest

Santander Consumer Finance rolls out online loan applications Santander Consumer Finance (SCF) is set to Stewart Grant, commercial director at dealers to purchase stock at Aston Barclay’s six launch an online loan application platform, Santander Consumer Finance, said: “This auction centres in person or online, and then expanding its support for dealers. is a significant step in our digital marketing charge the cost to their wholesale facility with The service has been trialled by a number strategy, and underlines our commitment to Santander. of selected dealers ahead of the platform’s supporting our dealer network in maximising The move is intended to allow dealers to launch for partners already using Santander sales and profitability within the growing benefit from faster turnaround on vehicles Consumer Finance’s online finance calculator. digital market. purchased through Aston Barclay, as well as The system is integrated into the dealer’s “It is a huge achievement for the teams enhanced cashflow management. website, and customers will be able to involved at SCF to be able to launch two Andy Green, marketing director at SCF, source a finance quote on the calculator online application systems in less than four said: “We are always looking for new ways before applying through SCF’s secure online months, and within a year since the project to further strengthen the support we provide platform. was first planned.” to our dealer partners, and the facility for Customers receive a real-time decision Earlier this year SCF, launched a wholesale Aston Barclay is an important development on their selected product, and accepted finance facility for selected dealers at vehicle in achieving our aims. It helps dealers with customers can then choose to sign their auction and remarketing group Aston Barclay. cashflow, as well as streamlining the process of documentation at home or at the dealership. The wholesale finance proposition enables buying stock. < Daimler leads £25m investment round in Carwow platform reinvesting in the technology platform, while Daimler’s Axel Harries will take a seat on the firm’s board of directors. The investment round marks the first time that carwow has opened up to strategic investors. “When carwow was founded, there was a view from the industry that there might be some resistance for a model that levelled the playing field for consumers and dealers,” commented carwow founder James Hind. “Having one of the world’s leading car manufacturers investing in the future growth and success of our business is a real proof point that this is a solution that works,” Hind continued. “This demonstrates that the industry perspective is shifting to what we anticipated when we launched – not only that the car purchasing journey was James Hind, carwow primed to move into the digital era, but Online new car sales platform carwow network of dealerships. More than £5bn that dealers and manufacturers can greatly has closed a £25m funding round led by worth of cars have been bought on the reap the benefits of more informed and German vehicle manufacturer Daimler AG. platform since the company launched – empowered customers.” The funding injection will be used to representing 5% of the total UK market. Rob Moffat, partner at Balderton accelerate growth for carwow in the Since launching in Germany in 2016, the Capital, added: “We are delighted to bring UK, Germany and Spain. The company company has experienced rapid growth Daimler on board at carwow, alongside said it plans to invest in talent, product and now accounts for 1.5% of all new retail further investment from Balderton, Accel development and marketing. car sales. The Spanish operation, launched and Vitruvian. This investment from one The platform is designed to help a year ago, expects to sell €200m (£180m) of the leading global car manufacturers consumers through the car-buying journey, worth of vehicles by the end of this year. demonstrates how strategically important with information and reviews, transparency Existing investors Balderton Capital, carwow is becoming for online car sales on pricing and ratings across the site’s Accel and Vitruvian Partners are all across Europe.” <

8 | September 2019 | Motor Finance

MF September 178.indd 8 20/09/2019 11:46:13 News | Digest

Startline: flexible motor finance key in event of hard Brexit the short to medium term,” Burgess added. “This is likely to influence all aspects of the used car market, and motor finance will not be unaffected. Given historical precedents, underwriting rules are likely to be tightened just at the point in time when used car retailers really need some additional flexibility. “That is why we believe that the kind of flexible lending that we provide could prove to be an essential part of any dealer lending panel over the coming year and beyond. Because our whole approach is based on a form of underwriting that is more holistic in approach, we will often be able to help when traditional motor finance providers cannot.” Burgess noted that the situation would become even more acute if a hard Brexit caused noticeably higher unemployment or an increase in defaults on loans. “All of these will impact on used car buyer credit scores, which is something Flexible motor finance will grow negative impact upon the economy, could that we saw after the financial crisis,” significantly in importance as a product have a substantial effect on the UK motor Burgess explained. should there be a hard Brexit in October, finance sector. “There will undoubtedly be a demand according to Startline Motor Finance. “It is not a political comment to say for motor finance from people who have According to Startline chief executive that even the best hard Brexit outcome encountered these problems, and more Paul Burgess, consumer confidence is would be bad for the economy, and the flexible motor finance is the only solution likely to be adversely affected in the event worst could be very damaging. Almost no without turning to the high rates and of a hard Brexit. This, combined with the economic experts see a positive effect in tough conditions of subprime lenders.” < V12 Vehicle Finance goes live with wholesale platform V12 Vehicle Finance, the motor finance has established a unique digital buying to go live in the first quarter of 2020.” arm of Secure Trust Bank, has gone live and funding journey for dealers and White Secure Trust Bank launched V12 in June with White Clarke Group’s Calms wholesale Clarke Group’s platform supports the future this year, having designed the business to finance platform. growth of our business,” said David Mercer, help dealers source and fund vehicles through The new facility will provide V12 with managing director at Secure Trust Bank. physical and digital auction channels. a greater speed to market, and is intended Peter Dyson, group chief operating V12 will provide a range of finance to improve functional and technical officer at White Clarke Group, added: “A products to both prime and near-prime requirements to facilitate each element of the collaborative approach and transparency from customers, with both HP and PCP options dealer stock-funding journey. the start led to the smooth delivery of this available. The application process can be The entire wholesale process will be project. This is yet another great endorsement completed online, with customers signing automated, enabling V12 to fund via channels of our Calms Wholesale Finance platform, e-documentation. such as auctions and forecourt purchases. which continues to get positive attention Mercer said: “We are focused on building Dealers manage contracts through the Calms from businesses needing cost-effective, swift a unique proposition for used car and van platform, which offers configuration of responses to increasingly dynamic customer dealers that has never been seen before in the finance products plus integration with in- requirements. UK market. Secure Trust Bank has built a house and external systems. “We are also now in the process of strong heritage in the vehicle finance sector “We are especially pleased with the success implementing our Calms Retail Finance with Moneyway, and is keen to invest in new of this implementation. V12 Vehicle Finance software for V12 Vehicle Finance, scheduled products to further grow the business.” <

www.motorfinanceonline.com | 9

MF September 178.indd 9 20/09/2019 11:46:14 News | Digest

Mobility tech provider Fleetondemand acquires FleetEurope has been a key business partner since 2012 and has gone from strength to strength in recent years under the guidance of Joe Howick and his experienced management team. “Both businesses also share very similar core business philosophies and cultures, and are renowned for delivering best-in- class customer service and market-leading technology. This acquisition made perfect sense, allowing us to strengthen our existing partnership and fuel our ambitious growth plans.” Howick added: “This new partnership with Fleetondemand is an extremely positive move that will enhance our existing service offering to customers. Mobility technology provider companies, and a range of local, regional We’re experiencing a growth in demand for Fleetondemand has acquired and specialist rental suppliers. an all-encompassing mobility solution that Buckinghamshire-based vehicle Customers will gain combined access allows customers to book various modes of management company FleetEurope for an to the UK’s largest vehicle rental fleet transport, in addition to vehicle rental. undisclosed sum. of over 600,000 vehicles from 2,200 “Our customers will now have The deal was funded by branch locations nationwide, using the access to Mobilleo, Fleetondemand’s Fleetondemand’s current long-term latest version of Fleetondemand’s vehicle revolutionary MaaS technology platform investment partner BGF, which acquired a rental platform. Fleetondemand said the that consolidates all forms of business minority stake in the technology business system currently manages 320,000 rental travel into a single application, including following a £5m investment last year. BGF transactions a year from 19,000 individual car rental, flights, trains, ferries, taxis, car has committed more than £2bn in over users. clubs, hotels, airport lounges and more. 285 businesses since it was set up in 2011. The combined business will be led by the “We’re extremely excited about this new This acquisition will see Fleetondemand executive board, including Fleetondemand partnership. Maintaining our reputation for accelerate the growth of its mobility-as- chief executive officer Justin Whitston, delivering outstanding service is our top a-service (MaaS) solutions in the vehicle non-executive chair Andrew Cope, chief priority, so it will very much be a case of rental sector, through the provision of financial officer Nicola Sharp, operations business as usual for our customers as we its Mobilleo application to FleetEurope director Matthew Heald and chief bring the two businesses together.” clients. operating officer Joe Howick. Financial due diligence and The combined business will create FleetEurope’s current chair and founder, corporate finance advice was given a powerful suite of MaaS technology John Yarroll, will be retiring after 25 years to Fleetondemand by KPMG, while products and services for UK and of managing and growing the business. Resolution Partners provided corporate international businesses, in addition to Whitston said: “Bringing the two finance advice. Legal advice was given by consolidating existing supplier partnerships businesses together was an easy decision Freeths (Fleetondemand), Gateley (BGF) with the UK’s major vehicle rental in our aggressive growth plan. FleetEurope and Osborne Clarke (FleetEurope). < FLA: consumer car finance market dips 3% in June POS consumer car finance market dropped The POS consumer used car finance by 3% year-on-year in June, according to the market reported a 1% year-on-year fall in new latest figures from the Finance and Leasing business volumes in June, while the value of Association (FLA). new business remained similar to June 2018. New business volumes declined 5% in Geraldine Kilkelly, head of research and June compared with the same month in chief economist at the FLA, said: “The PoS 2018, while the value of new business fell consumer used car finance market reported by 4%. The drop in June marks the fourth a record total for new business volumes in consecutive month of decline in the consumer the first half of the year of almost 772,000 car finance market. vehicles, while the modest fall in POS The percentage of private new car sales consumer new car finance in the first six financed by FLA members through the POS months of 2019 was in line with wider trends was 91% in the 12 months to June 2019. in private new car sales.” < Geraldine Kilkelly, FLA

10 | September 2019 | Motor Finance

MF September 178.indd 10 20/09/2019 11:46:16 feature | credit scoring

keeping score: the pros and cons of credit references

Consumers and lenders alike are becoming increasingly aware of the importance of credit referencing, but what are the limits of this process, and how will they affect the motor finance sector?Chris Farnell writes

redit scores are widely used in the information fed to the credit reference agency information about the payment behaviour motor finance industry to assess [CRAs] from banks and lenders.” of their customers, to support responsible Cthe credit risks of both customers Perhaps the best known of these agencies and profitable lending decisions. The CRAs and companies. is Experian, which aggregates information add in other relevant information, such as They are a vital resource for lenders to the electoral register, court judgments and ensure that customers are not getting into insolvencies, to build up factual credit reports financial stress or levels of debt that they on most UK adults.” cannot afford. The process by which this score A customer’s credit score is, as Basini comes about, which can often seem opaque describes, “a snapshot reflecting how you have to those outside the industry, involves a handled debt and credit accounts in the past”. complex amalgamation and cross-referencing Credit scoring is Very simply, people who have handled debt of information. well, never defaulting or missing payments, “Credit agencies use a variety of information complex; so many will have good scores; however, those who sources to gather data for credit scores – have had trouble paying off debts will have financial institutions, public records, the factors are taken lower scores. electoral roll,” explains Justin Basini, chief As technology develops, credit agencies executive officer and co-founder at fintech into consideration have improved their processes for registering business ClearScore. and refreshing data, ensuring that their “The most important data points, however, reports adapt quickly to reflect recent events. come from financial institutions, which “For example, providers of payday loans can report the accounts you have had with on over 1 billion people and businesses. The register new customer loans with the agencies them in the last six years. Credit scoring is credit agency’s head of automotive, James in real time,” Syron tells Motor Finance (MF). incredibly complex, and so many factors Syron, points out: “CRAs enable banks, “Annual paper electoral registers that had to are taken into consideration, including lenders and other providers to exchange be checked and keyed in manually have 

www.motorfinanceonline.com | 11

MF September 178.indd 11 20/09/2019 11:46:17 feature | credit scoring

rate. The score itself does not provide any additional information – it is, instead, the summary of all the information. But lenders always look at the credit report together with the score.” By looking at the credit report, lenders can gain an insight into the customer’s financial life – the types and amounts of borrowing they have had in the past, the total debt they owe at the moment, whether their debt is increasing or decreasing, and their monthly required payments. The knock-on effect for this should be twofold: providing customers with better deals, and car finance companies with better returns. “Car finance deals should become cheaper as a direct result of the implications of Justin Basini, ClearScore James Syron, Experian improved credit risk based on a rising credit been replaced by monthly electronic updates score,” Fabritius points out; unfortunately, routinely interacts with credit agencies when from local councils that can be matched, however, it does not always work that way. making decisions. He tells MF: “As a bank, checked and updated by machines.” “A recent paper by the Financial Conduct we share data with CRAs regularly. This By using new technologies and techniques, Authority (FCA) looked specifically at the car ensures that financial institutions have a full credit scores are able to better predict future finance broker commission models, where view and are able to fairly assess a customer’s behaviour by comparing new and past firms are effectively incentivised to set higher level of indebtedness for any new lending.” customers customers with similar profiles, customer interest rates, thus earning higher using credit scorecards. commissions. Due to increased scrutiny, over SELF-AWARE CUSTOMERS While the motor finance industry is working increasingly closely with credit scoring If a person knows they want to purchase agencies, and establishing ever-more detailed and granular methods to build up a picture of a car in the future, they can start their customers, customers themselves are also becoming more aware of their credit score working to improve their credit score and the impact it has on their lives. “When it comes to car finance, the better your score, the better your deal,” Fabritius “While the basic approach has not changed, time we should see this change to reflect says. “If a person knows that they want to improvements have been achieved through the link that we should see between the two, purchase a car in the future, they can start more sophisticated modelling – for example, much like we do when looking at loans.” working to improve their credit score in the looking at data trends rather than one-off Credit data is an essential component in hope of securing a better deal.” snapshots,” Syron says. understanding how likely a customer is to Smith agrees that customers are now “Advances are also being made in improving repay a loan, but it is also used to determine becoming more interested in their personal decisioning about people who traditionally affordability. credit ratings, and this is evident from the had little or no credit history. One example As well as helping customers assess whether growth in online options in this space. is adding rental payments to tenants’ credit a financial product will be affordable for the “It is an important development, as reports – for example, through Experian’s lifetime of the loan, some credit agencies are consumer acceptance here signposts that risk- partnership with Big Issue Invest.” partnering with the motor finance sector to based pricing approaches may become more take into account another vital element in viable in the future for car buyers,” he notes. CARS AND CUSTOMERS lending decisions: the vehicle itself. “This has positive benefits, because it can The main purpose of a credit score is to “The vehicle is another key factor in increase availability of credit and consistency predict whether money lent is likely to be lending decisions,” Syron says. “Experian of pricing.” repaid as agreed, and this applies as much to has partnered with an industry-leading Pre-eligibility checks are an important motor finance as any other lender. And as in valuation partner, Cazana, to assist lenders development in this space that will help any financial decision, the more information in understanding the value of a vehicle both improve the customer experience, and online to which a lender has access, the better. now and in the future. If a car depreciates tools embedded on websites are expected to Giulia Fabritius, car finance specialist at quickly, then this key insight requires feeding increase in popularity; ClearScore is one such ClearScore, explains: “Ultimately, for the into a lending decision, as it is a greater risk.” tool. It obtains data from Equifax, one of borrower, a higher credit score translates to These relationships are becoming more the UK’s three CRAs, providing consumers two main benefits: getting approved for a common. As Tim Smith, head of motor with free access to their credit scores and higher amount, and getting a lower interest finance at Black Horse, explains, the lender reports for life. By taking a commission from

12 | September 2019 | Motor Finance

MF September 178.indd 12 20/09/2019 11:46:18 feature | credit scoring

partners when a customer buys a product Data Protection Regulation [GDPR] is now credit history, if borrowing is spread between through ClearScore, it is able to offer this in force in the UK, and has raised the bar in different countries, not all the relevant data service free of charge. terms of consumer privacy and transparency, may be visible to the CRA. “The growth of ClearScore is proof requiring a number of changes to the way “It is very dependent on past borrowing of customers’ growing awareness of the CRAs operate,” Syron tells M F. “One simple behaviour specifically within the country in importance of credit reports and scores in all example is that people can now check their which said borrowing took place,” Basini finance decisions,” Basini says. “Our users own credit reports for free.” says. “As a result, some individuals who know that by using us to finance their vehicle, The credit-scoring process is continually move countries have insufficient information they can apply with confidence, as we tell reviewed to ensure that it is as accurate as to build up a truly representative credit them the likelihood that they will be accepted possible. Lenders and CRAs are finding score, even when they should otherwise be for finance.” ways to incorporate the latest technical considered a low credit risk.” Experian has also noticed that awareness developments, such as machine learning and The aggregation and analysis of data is now and engagement with credit reports and big data analysis, into their scores. easier than ever – a trend that is only set to scores has been growing for many years. Credit scores are likely to continue to play continue, even with the advent of GDPR Experian’s 2019 Credit Awareness Week a very significant role when deciding if a regulations. Using that information wisely is survey revealed that more than a quarter of customer will be eligible for finance in the the next challenge. adults know their current credit score, or at future, but there remain limits, which the least a guide score from a credit reference industry is working to overcome. REGULATION agency – no one has a single credit score. This “At the moment, the biggest limit of credit In light of the changes and challenges to the undoubtedly affects how people approach and scores is that they are heavily based on a credit scoring market, the FCA has launched manage credit. user’s past borrowing behaviour,” Basini says. a market study to examine how the market “For example, more and more people “Those who are new to credit are stuck in a works and its impact on consumers. are using eligibility services to see whether chicken-and-egg loop: you cannot get a credit There may be inefficiency in the sector, they are likely to get the credit they would score until you borrow, but you can’t borrow some of which the regulator has detected, and like before they apply,” Syron explains. “In until you get a credit score.” with the advent of technological innovation February 2019, 77% of credit card searches Syron adds: “It is essential that credit come new market players that will add were soft searches, compared to less than a third (29%) four years previously – a rise of 48%. These soft searches, which allow It is essential that credit reporting consumers to check their eligibility, have no effect on the individual’s credit score.” keeps track with changing consumer Experian has responded to this trend by expanding its eligibility services to better behaviour to stay fit for purpose include the motor finance sector. Consumers can compare a range of finance options for used cars, and see their likelihood of being reporting keeps track with changing information about where these market accepted. consumer behaviour to stay fit for purpose. efficiencies lie, further increasing the interest “Such services are important, as we found For example, the advent of Generation Rent of the regulator. that nearly two-thirds (60%) of Brits has underlined the value and importance of There also remain questions of privacy and admitted they do not know the difference bringing rental data into credit reporting. As consent for technology business consumers between HP, PCP and a typical car loan – more people are renting and sharing rather that are monitoring social media firms as a even though these options are how cars are than owning their home, the CRAs must basis for credit scoring. now commonly purchased,” Syron says. respond by taking steps to keep credit reports The FCA says the market study will and scores up to date and relevant.” focus on three themes: the purpose, quality CREDIT LIMITS Basini explains that credit agencies and and accessibility of credit information; While the benefits of credit referencing are fintechs are exploring alternative ways to market structure, business models and manifold, it has its limits – even with the assess borrowers – from measuring rent competition; and consumer engagement and vastly increased volumes of data to which payments to analysing spending, both of understanding of credit information, and agencies now have access. which are increasingly important sources of how it impacts their behaviour. It adds that in The challenges take various forms. Firstly, data in a market where mortgages and home exploring these themes, the study will assess there are regulatory considerations. Credit ownership are on the decline. how the sector is working now, and how it reference agencies are authorised and “These solutions are in the nascent stages, may develop in the future. It will also look at supervised by the FCA, and must meet its however, and it will be a while before we see how the markets for credit information work conduct rules and principles. one reach market penetration,” Basini says. in some other countries, and what the UK Credit reporting also falls under the watch “In the meantime, ClearScore offers users with market might learn from them. of the Information Commissioner’s Office, no or recent credit score access to alternative The FCA says it will report on its which ensures compliance with the Data products that can help them build the history preliminary conclusions on these themes in Protection Act. they lack.” the spring of 2020, including, if appropriate, “It has been well publicised that General Even if a potential customer has a long a discussion of potential remedies. <

www.motorfinanceonline.com | 13

MF September 178.indd 13 20/09/2019 11:46:18 feature | cenex roundtable

cenex roundtable: the future of mobility – urban strategy

Figures from government transport departments, including Lawrence Davies, chief executive at the Department of International Trade’s Automotive Investment Organisation, and Andy Eastlake, managing director at the Low Carbon Vehicle Partnership, met in London last month to discuss the future of mobility in the UK, and the obstacles faced as the industry tries to achieve the Road to Zero targets set out by the government. Chris Lemmon reports

he panel discussed how the Edmonds explained that there are currently consumers is by providing greater incentives transport system in the UK and two main barriers to mass market adoption: for purchasing EVs. Responding to a question Taround the world is on the cusp of price and range anxiety. However, Edmonds from the audience on why the UK does a seismic shift. Consumers are rethinking believes these problems will be solved in not follow a similar incentive programme their ideals on transport, turning the not-too-distant future as technology to Norway, Edmonds said this is “a bit increasingly to mobility-as-a-service and continues to develop. like comparing apples and oranges”. She usership options. “The predictions for price parity between explained: “They do not have a car industry The environmental impact of the internal-combustion engines and zero- like we have in the UK, while overall car fees automotive industry can no longer be ignored, emission vehicles sit at any time between are much less than ours. They do have a good with the UK government making strong 2022 and 2028. It is at that point that mass incentive package, but our incentive package commitments to reaching zero-emission market adoption will begin to be achieved.” is still stimulating the market in the UK. targets by 2050. The car market is also in a “The UK is still the second-largest market state of flux, with government and industry UNWARRANTED FEAR in Europe in terms of sales. In terms of bodies preparing themselves for a fresh look When speaking about range anxiety, manufacturing, we have an edge in that the to the country’s transport network. Edmonds said there is an unwarranted fear Nissan Leaf is manufactured here, and is “Our mission is to put the UK at the among consumers that has created a gap now responsible for a fifth of all EV sales,” forefront of the manufacturing of zero- between perception and reality. Edmonds added. emission vehicles, with a view of being at net “I have an electric vehicle (EV),” she said. As the number of EV sales continues to rise zero emissions by 2040,” said Vicky Edmonds, “I don’t have on-street parking and I have in the UK, the accompanying cost will fall head of the Office for Low Emission Vehicles no trouble charging my car. Infrastructure rapidly over the next few years. While the UK – Road to Zero. is really starting to roll out, along with the is currently going through its teething phase, “By 2030, we want at least 50% of all new vehicles. The challenge for us is to give mass market adoption appears to be around car sales to be ultra-low-emission vehicles, consumers confidence.” the corner, and the infrastructure needs to be and up to 40% of vans.” One way to encourage confidence among ready to support that.

14 | September 2019 | Motor Finance

MF September 178.indd 14 20/09/2019 11:46:19 feature | cenex roundtable

emerging technologies correctly serve the needs of the public at national and local levels. He explained: “At a national level, the principles and the strategies are about making sure we avoid inadvertently having some application technology that makes the transport system worse. “At a local level, the reason we are investigating with local authorities is to try and help them get their heads around the fact that transport is changing, so they can shape it around the needs of their citizens.” MOVING FORWARD Andy Eastlake, managing director at the Low Carbon Vehicle Partnership, spoke to the panel to explain the agenda set by the government and the challenges faced in achieving the targets. “The Road to Zero was a really important document; however, it suffered in the fact Cenex chief executive Robert Evans addresses the roundtable that it was very broad. The headline that got “Change is hard,” added Lawrence Davies, work to ensure that the technology works picked up was that we are going to ban all chief executive at the Department of safely and efficiently.” non-electric cars and vans in 2040. International Trade’s Automotive Investment Neil Fulton, chief operating officer “It was never a ban. We never banned horses, Organisation. “Every change is hard. These at Connected Places Catapult, said he but you don’t see many of them on the streets are the growing pains, and we are likely to expects the freight network to be one of the of London. You do not need to ban things if make more mistakes moving forward. We are first industries to adopt the autonomous you make sure the alternative is much, much the guinea pigs, unfortunately.” technology, with motorways likely to be one better and far more convenient.” of the first geo-fenced areas in which self- With the new net-zero target, Eastlake AUTONOMOUS FUTURE driving cars can operate. However, the testing noted that agendas across the industry have An audience member quizzed the panel on for the technology remains in its infancy, with become more urgent. public appetite for autonomous vehicles, widespread roll-out not expected within the “The UK has now legislated for 2050 and whether we are likely to see incentives next five years. for there to be a 100% reduction in CO2 for them similar to those for EVs, which With regards to incentives for the self- emissions, rather than the previously stated currently include all EVs being exempt from driving industry, Fulton said it is still too 80%,” Eastlake said. non-recurring vehicle fees such as purchase soon for the government to intervene. “The “One of the challenges we faced with the taxes and 25% VAT on purchases. market for EVs is more mature, so there is 80% figure was that everybody thought Iain Forbes, head of the government’s a greater sense of what is market-ready,” he they were part of the 20% that could get Centre for Connected and Autonomous noted. “When we have gotten to the point away with it. Now there is nowhere to hide. Vehicles, said his department has recently of market maturity, then we can start having Transport is the biggest sector and contributor completed a public dialogue on autonomous that conversation.” to carbon in the UK – contributing 27% of and self-driving vehicles. According to total greenhouse gas emissions.” Forbes, the survey revealed positive sentiment ALTERNATIVE MEANS The problem we face, according to towards the technology, with people Another talking point at the roundtable Eastlake, is that even if we achieve the goal of recognising both the upsides and some of the discussion was the changing nature of zero-emission cars and vans by 2030, there downsides it would bring. travel we may see in the future. Cenex will still be a huge amount of carbon being “People have a sophisticated sense of what chief executive Robert Evans said the produced by combustion engines. To solve this technology might mean for them. What implementation of 5G and its capabilities this issue, the government must also invest in consumers want to understand is how it could spell a new age of mobility in the UK. the decarbonisation of fuels. is going to improve their lives. It is really “The element of connectivity that will “Vehicle technology is this huge spectrum important that companies working with this come with 5G means people will start to with a lot of focus on it, but people technology do a lot of work to engage with ask questions about some of the trips they sometimes forget that full technology also members of the public and people from a make, because some of the processes and has a full spectrum – all the way up to highly wide range of transport user groups. relationships that you can have with people in renewable,” continued Eastlake. “This is a very new technology, and people the virtual world are almost as good as face- “Low-carbon sustainable fuels will play a want to be confident knowing it is safe and to-face in a way that never was before.” big role in carbon-neutral growth over the secure. They want to have some sense that Forbes added that, moving forward, the next 30 years. Our view is to try to evolve and someone in a white coat is doing the proper automotive industry needs to ensure that develop those fuels.” <

www.motorfinanceonline.com | 15

MF September 178.indd 15 20/09/2019 11:46:20 feature | gap insurance

minding the gap: troubled times for asset protection

It has been a turbulent period for guaranteed asset protection (GAP) insurance, with recent Financial Conduct Authority (FCA) intervention forcing significant change on the market and causing shifts in consumer and dealer behaviour. Chris Lemmon spoke to industry figures to learn the current trends and challenges

AP insurance providers have insurance sales followed suit; however, recent The FCA decided to introduce new benefited from the success of the economic uncertainty has triggered a wave of measures to sales of GAP insurance products Gnew car finance market over the hesitancy across the UK motor industry, with following an investigation into motor dealers past decade, which has seen the value of sales of new cars faltering while consumers providing the add-on insurance in 2015. POS new car finance increase from £7.8bn await the outcome of the Brexit situation. The regulator felt that the GAP insurance in 2010 to £19.1bn in 2017. Financial results show that motor dealers was being mis-sold to customers who lacked The number of new cars purchased using are having a tough time of late, while further a complete understanding of the product POS finance almost doubled from 517,000 FCA intervention could force dealers to and their options. In addition, the FCA felt in 2010 to 990,000 in 2017. With the completely rethink their strategies around that motor dealers enjoyed a strong POS greater availability of finance opportunities, finance and add-on products such as GAP advantage over independent providers – the number of cars sold increased, and GAP insurance. which meant there was little or no pressure

16 | September 2019 | Motor Finance

MF September 178.indd 16 20/09/2019 11:46:21 feature | gap insurance

would have been had we not intervened. Some consumers decide, on reflection, not to proceed with the purchase.” Separate figures from Dealerweb revealed that total GAP insurance sales rose by 15.4% year-on-year in October 2018 – highlighting the positive impact of the FCA’s intervention in the independent GAP insurance market. However, independent GAP providers do have an advantage over motor dealers in the market. James Cartwright, managing director at independent GAP insurance provider Direct Gap, explains that the rate of insurance premium tax is different for independent providers than for motor dealers. “The car dealer will pay insurance premium tax at a rate of 20%, mirroring VAT,” he says. “Whereas for us, as an independent, the rate of Martin Hill, Dealerweb James Cartwright, Direct Gap insurance is actually lower at 12%. So there is on them to reduce the price of the product. an immediate cost saving for the customer of There have been a number of challenges To tackle this, the FCA installed a 8% on the insurance premium tax. facing the industry as a whole in the last 12 requirement for vehicle sellers to provide “Another advantage is that the motor dealer months, which also look set to continue to more information to customers and offering can generally only be sold within disrupt the GAP insurance market for the implemented a ‘two-day pause’ rule, meaning a window of 14 days of when the customer foreseeable future. sellers can start the sales process but cannot takes delivery of the vehicle. Our products are For starters, the wider motor industry is conclude it for a minimum of two days. This far more flexible, with up to 180 days to offer in the midst of economic turmoil, with the was designed to afford consumers some time a product to the client.” most recent figures from Cox Automotive to shop around for alternative providers, and Consequently, independent providers revealing a fifth consecutive month of falling decide whether they need the product in the can offer customers more flexible insurance new car sales – and the worst July for new first place. options at a far lower price than the motor car sales since 2012. The impact of falling consumer confidence and fewer new car sales is also placing a strain on GAP insurance sales, Used car demand remains robust, and GAP compounding the difficulties faced by motor dealers. sales in this sector have increased by As a result of the ongoing market decline, Cartwright believes there has been an 2.7% in a very cost-conscious market increased drive from motor dealers to secure sales of add-on products for the cars they have sold. Dealerweb chief executive Martin Hill dealer can. With the FCA two-day pause rule “We’re seeing cancellations from customers welcomed the new measures, stating: now in place to give consumers the option whose dealers have come back to them and “Compliance is key to the sales process. The to shop around and assess their options, slashed the price of the product, or they may current FCA investigation into motor finance dealers face tough competition on the GAP include it in the finance package in some way. shows that from GDPR to treating customers insurance front. In some cases, the dealer has refused the sale fairly, compliance should be an integral part of the car unless the GAP insurance policy of closing any sale. A CHALLENGING YEAR was also purchased,” he explains. “When structured correctly, compliance Since the positive performance in 2018 Additionally, Cartwright believes that one procedures should create a more transparent however, the picture has not been so rosy for of the main issues impacting the market is sales process, which ultimately will help to the industry. The most recent figures from the lack of underwriters in the market willing increase sales.” Dealerweb reveal that there has been an 8.9% to offer GAP policies. The last 12 months decline in GAP insurance sales in the first has seen a number of underwriters withdraw POST-INTERVENTION half of 2019 compared with the same period from the market, pushing the policy rates Last year, the regulator released an update on last year. higher. the market since the new measures were put Hill says: “The results reflect the headwinds Elsewhere, the FCA’s recent investigation in place. “After our intervention, consumers the new sector has faced, and this is likely into the motor finance market highlighted now engage more with the decision-making to continue for the rest of the year. Used car concerns over commission structures – with process, with shopping around more than demand remains robust, and GAP sales in add-on product commission structures doubling,” a statement read. “Add-on GAP this sector have increased by 2.7% in a very expected to be reviewed and potentially insurance sales are 16-23% lower than they cost-conscious market.” reduced or removed in the future. 

www.motorfinanceonline.com | 17

MF September 178.indd 17 20/09/2019 11:46:22 feature | gap insurance

Recent research from GAP insurance provider InsureTheGap highlighted the differences in the price depreciation of electric cars currently on the market. It found that the price of a Renault Zoe depreciated by 61% over a three-year period from its purchase price of £19,988 to only £7,830 in 2019, while the BMW 330e dropped from £33,800 new in 2016 to £15,900 in today’s prices. While residual values remain unpredictable for electric and hybrid vehicles, demand for GAP insurance is likely to increase as consumers seek to protect their investment. Ben Wooltorton, chief operating officer at InsureTheGap, says: “As with all investments, it pays to know how well they will keep their value over time, and electric cars are no Louise Wallis, NFDA Ben Wooltorton, InsureTheGap different.” “That is a big threat,” notes Cartwright. “It Wallis explains that GAP insurance will and dealers. There may be improved demand is getting increasingly difficult for car dealers remain a viable option for consumers, as it from consumers in the GAP market due to to make a profit from finance and add-on protects potential losses should their vehicle increased fear of having their car stolen, while products.” be written off. “It means a consumer is able dealers will be facing substantial rate increases to buy a replacement vehicle without having on GAP insurance due to the level of claims CHANGING BEHAVIOUR to fund any difference between the insurance being lodged. “GAP insurance remains a popular option claim and the price of a new vehicle.” for consumers,” said Louise Wallis, head WHAT NEXT? of business management at the National KEYLESS THEFT EFFECT Hill says motor dealers are pedalling hard Franchised Dealers Association (NFDA). One of the FCA’s key findings in its in 2019 across all elements of their business. “The need for dealers to provide prescribed investigation of GAP insurance was that, “We have seen an increase in the number of information has helped to raise the profile on average, only £10 in every £100 paid outbound prospecting calls of over 10% in of the product among consumers. Thanks in add-on GAP premiums was being paid new car sales. Equally, finance penetration has to the popularity of PCP and PCH options, out in claims. This average claims ratio of increased by 1.4% for new and 1.2% for used. consumers have become more aware of the 10%, according to the regulator, is much GAP sales continue to provide a valuable value of the vehicles they buy. As a result, lower than other general insurance products income stream and they should be structured more consumers tend to be interested in GAP on the market – meaning it is unlikely that into the sales process.” insurance.” customers would ever need to take out GAP Moving forward, it is clear that dealers face an uphill battle with current and incoming regulation on sales of add-on products such The need for dealers to provide prescribed as GAP insurance. Wallis believes that dealers will have to consider reviewing the viability information has helped to raise the profile of offering GAP if there are any significant impacts on the commissions they earn. of the product among consumers “Commissions are not solely aimed at making a margin, but they also cover the cost of delivering a product to the consumer,” The accelerating switch to alternatively insurance in the first place. she notes. “Dealers are facing increased fuelled vehicles (AFVs) has also had an However, Cartwright says the trend is compliance as well as delivery costs of impact on the GAP insurance market, with changing. “If you look at 10 years ago, 80% financial products. These are elements they consumers generally more concerned about of our claims would have been accident – need to consider when reviewing any product the residual value of their AFVs than with whether fault or non-fault – while 20% sold.” their previous internal-combustion-engine would be theft. If you look at the current Motor dealers will be keeping a close vehicles. statistics, in excess of 50% of our claims are watch on FCA announcements in the coming “The industry is more worried about the now theft claims, with the rise of keyless months, as potential caps on add-on product residual values with electric vehicles because entry. The claims frequencies are definitely commission could have serious implications the technology is unproven at the minute,” increasing.” for profit margins. Should such measures be says Cartwright. “Five years ago, when hybrid With the rise of keyless car theft, introduced, dealers may be forced to rethink vehicles started to be sold, there were similar Cartwright believes the industry is likely to their strategies around the sale of motor concerns about the residual values.” see a shift in the behaviour of both consumers finance and add-on products. <

18 | September 2019 | Motor Finance

MF September 178.indd 18 20/09/2019 11:46:23 opinion | bermans

administrators’ claim to vehicle ‘misconceived’

Bermans Solicitors recently – and successfully – represented a captive motor financier in roundly defeating a claim by administrators which sought to interfere with a client’s right to possession of a vehicle worth in the region of £7m. Ian Munford and Andrew Henderson write

ver since the landmark Atlantic of the administration and cannot agree Computers case in 1991, terms, they can seek the directions of the Eadministrators have, in general, court. If administrators wrongly retain goods recognised that they have very limited otherwise than for the proper purposes of the ability to interfere with the property administration, for example, to use them as rights of financiers, and that the statutory a bargaining counter, the owner can apply to moratorium granted to them by the the court to direct the administrators to hand Insolvency Act 1986 normally requires over the goods without the need for action, them to continue to pay rentals or return and to pay compensation for having retained equipment that is subject to finance. them in the meantime. Only in a case where In this case, the administrators sought to there was a triable issue as to the ownership of advance a different argument. The vehicle the goods will the question of giving leave to had been acquired by the client from a take proceedings for possession arise.” dealer, who as part of the price had received In short, in this situation, unless there five other vehicles in part exchange from is a triable issue as to the ownership of the Mr Hood, controller of JD Classics Ltd (the goods in question – that is, a real prospect company). The client obtained a letter from of the administrators showing that the Hood declaring that he had the right to company has some proprietary right entitling dispose of those vehicles, and Hood entered it to possession as against the party seeking into a hire purchase agreement with the client. to recover it – it is open to the owner to Ian Munford, Bermans When the company went into administration apply to the court for an order directing the and the client sought to repossess its vehicle, where the owner had an immediate right administrators to hand over the goods. the administrators first sought to contest the to possession, had made a lawful demand Bermans took the view from the very client’s title to the vehicle. for redelivery, and there had been an beginning that the basis of the administrators’ After the client had clearly demonstrated unreasonable refusal to redeliver, subject to claim was entirely misconceived, if not the chain of title, the administrators switched the statutory defence under sections 234(3) mischievous. Consequently, the continued their argument to say that the part exchange and (4) of the 1986 Act, which is dependent threats and aggressive correspondence from vehicles were owned not by Hood but by the upon the administrator having reasonable the administrators were resisted, and the company, and that therefore the company grounds to seize or dispose of the asset in matter came on for hearing before a specialist had a “resulting trust” amounting to an question. Chancery Judge in Manchester, HH Judge equitable interest in the vehicle which the Eyre QC. client had acquired and supplied to Hood. OFFICERS OF THE COURT It is fair to say that the judge was not In Barclays Mercantile Ltd v Sibec Considering the position of administrators impressed with the administrators’ arguments, Developments Ltd [1992] 1 WLR 1253, when faced by a request by the owner for the and for various reasons he held that there was Millett J was concerned with a situation return of a particular asset, at 1259E-1259F, “no realistic prospect of a finding that there where administrators had refused to allow the Millett J said: “The administrators are officers could be a resulting trust in favour of the owner of goods leased on hire purchase to the of the court and at all times subject to the company in the circumstances here”. company to recover the same. He held that court’s direction. If they wish to make use Bermans was also successful in recovering administrators might be liable for conversion of another party’s property for the purposes all of its client’s costs. <

www.motorfinanceonline.com | 19

MF September 178.indd 19 20/09/2019 11:46:24 opinion | SHOOSMITHS

is the dealer OUR agent when repairing?

Mel Chell, partner and head of asset-based lending recoveries at Shoosmiths, discusses a point of case law that could affect funders and OEMs over the consumer’s right to reject a faulty vehicle

ince October 2015, motor finance in response, advised that technical issues finance house often knows nothing of houses have been applying the new regarding the vehicle should be referred to any issue until the customer stops making Srights and remedies for faulty goods Audi UK customer care and the dealer. payments, or becomes so exasperated that as set out in the Consumer Right Act Eventually, the claimant stopped they call the finance company, and at this (CRA). making his contractual payments and then, point you will want a chance to put things The CRA was said to be the biggest shake- subsequently, issued a court claim seeking a right. up of consumer law in a generation, and yet declaration of his right to reject and claiming You will want to avoid a situation where there have been very few reportable decisions damages. that right is lost because the dealer has already in relation to the construction of the Act. tried and failed to fix the issue and the trader This is probably because the Act “lifted and COURT RULING acted as your agent when attempting repair. shifted” the existing law in relation to what The court held that: In my view, finance houses should exercise constitutes satisfactory quality and fitness for • The ehiclev was not of satisfactory quality caution when liaising with dealers and purpose and description. Further, the new – a reasonable person would not expect customers to arrange repairs in complaints remedies in the CRA, such as the short-term a £50,000 prestige car to have a notable, cases. Consider the following steps to ensure right to reject, are actually very clear and leave irritating and distracting rattle; the dealer is not acting as your agent, and little room for interpretation. • There was a right to reject under s24(5) please note that there will often be cases CRA because the trader had failed to where you do knowingly authorise the dealer NEW DECISION repair or replace within a reasonable to carry out repairs: Against this backdrop, I was interested to time and without causing significant • Avoid referring customers routinely back read the published decision of William Van inconvenience to the customer; and to a dealer for repairs to take place before Gordon v Volkswagen Financial Services (UK) • VWFS claimed that the dealer was not you have acknowledged and considered Ltd [2019] which deals with the question of acting as its agent for the purpose of the complaint; agency and the one chance to repair. repairing the vehicle. Consequently, it • Avoid any standard wording in policies or argued it had not exercised its one chance standard letters referring customers to the THE FACTS to repair and so the claimant could not dealer; The claimant agreed to purchase a new Audi reject. The Court found that at all times, • Ensure that your terms and conditions do A8 motor vehicle from a dealer using a VWFS the dealer had been acting as agent on not direct a customer routinely back to hire-purchase agreement. behalf of VWFS in relation to handling the dealer, and The dealer sold the vehicle to VWFS who defects and managing repairs. This was • Ensure all complaints staff are fully trained hired it to the claimant in the usual way. Very supported (among other things) by in relation to the one chance to repair and quickly, the claimant became aware of a loud the acknowledgement letter referring CRA remedies – for example we often see vibrating and rattling noise and, as is usually the claimant to the dealer and also by a lack of understanding around warranties. the case, corresponded with the dealer directly certain terms and conditions in the HP regarding the noise. The dealer attempted to agreement. In our experience, the Financial repair the vehicle on several occasions. Ombudsman will often look very broadly at Eventually, the claimant decided he would ADVICE FOR LENDERS what has been done to assist the customer, exercise his right to reject based on the failed The CRA does give the trader (the finance and will not simply consider a strict repairs. The dealer was not willing to assist, company is the trader) one chance to repair interpretation of the CRA. Always make sure so the claimant wrote to VWFS rejecting before a customer can reject (after 30 days). you are treating customers fairly, and if in the vehicle. The acknowledgement letter, In practice, this is a very useful right. The doubt, take advice! <

20 | September 2019 | Motor Finance

MF September 178.indd 20 20/09/2019 11:46:24 databank

used car values Car product sold unit market performance – July 2019

Up to 1 year old 1-3 years old 3-5 years old % of Price vs % of Price vs % of Price vs Ave. Ave. Ave. Ave. Ave. Ave. Body type CAP previous CAP previous CAP previous age sold (£) age sold (£) age sold (£) Clean month (%) clean month (%) Clean month (%) Saloon (2.0 or less) 7.30 23,285 98.30 93.65 27.10 16,538 97.60 100.54 44.40 11,035 97.00 98.76 Saloon (greater than 2.0) 7.60 33,767 95.20 95.38 25.30 23,525 95.80 104.53 47.30 13,897 98.80 99.36 Hatch (2.0 or less) 8.60 17,933 98.10 96.49 26.00 10,655 96.20 102.69 45.10 7,499 95.50 98.50

Hatch (greater than 2.0) 8.30 27,963 98.00 92.90 25.00 20,713 98.90 103.62 48.10 15,808 98.80 101.93

Mini MPV (2.0 or less) --- #VALUE 23.40 11,511 94.80 97.54 44.10 7,823 92.50 97.01

Large MPV (greater than 2.0) 8.30 14,267 94.40 #VALUE 22.70 27,403 97.50 108.13 48.40 14,426 99.40 101.47

Estate 7.30 23,632 100.30 99.21 27.10 14,886 96.20 93.40 45.10 9,397 95.10 96.80

4x4 7.20 30,812 100.40 97.67 24.50 24,259 97.70 101.00 43.90 15,270 96.50 99.64

Coupés 7.80 30,487 100.90 92.44 26.20 21,681 98.50 104.24 44.50 14,632 98.60 98.57

Roadsters 6.30 35,642 108.60 66.62 25.70 20,413 101.90 70.50 45.80 16,410 99.80 112.78

Convertibles 9.10 26,046 104.30 104.05 26.40 20,849 98.10 100.99 44.30 14,019 99.80 94.50 analysis Car product sold unit market performance – July 2019 £ BCA Pulse – market upturns in demand. 8,000 BCA saw the market stabilise in 7,500 July and demand lifted in spite of the 7,000 commencement of the holiday season. The 6,500 headline used car value at BCA reduced by 6,000 £310 in July to £9,153 largely as a result of 5,500 the summer holiday season commencing 5,000 in earnest and a shift in the mix of product 4,500 entering the market. 4,000

BCA Valuations pricing intelligence Jul 18 Jul 19 Jun 18 Aug 18 Sep 18 Oct 18 Nov 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 continues to help value more stock to sell first time and has provided an additional layer of confidence during what has been a Source: Manheim Remarketing challenging period in the industry. Fleet & lease values averaged £11,294 at BCA in July 2019, down by just £78 July trading started reasonably well and stock (0.76%) compared to June, but up by £193 availability in the wholesale market did improve (1.7%) compared to a year ago, despite age and mileage rising slightly. Similar to last month, the retained value against original MRP (Manufacturers Retail Price) was down by around two percentage points when compared to 2018. 76.1% 3.8% 1.7% 2.6% UK unemployment Dealer part-exchange average values UK employment rate UK CPI UK RPI rate fell for the first time since April of this year albeit the average value of £5,009 was Base rate broadly in line with last year with a very similar profile of age and mileage. 0.75% Values for nearly-new vehicles at BCA v fell to £22,106, a £1,375 (5.8%) decline -14(v3) +1 ( 3) August Consumer Confidence Index August Consumer Confidence Index from the June value. Model mix has a (Large purchases) significant effect in this sector, with brand (source: Gfk NOP) (source: GfK NOP) specific winners and losers.

www.motorfinanceonline.com | 21

MF September 178.indd 21 20/09/2019 11:46:24 databank

europe focus Vehicle registrations from the largest EU countries by volume (data supplied by ACEA)

Country Aug 2019 Aug 2018 % Change Jan-Aug 2019 Jan-Aug 2018 % Change

Germany 313,748 316,405 -0.8 2,495,536 2,473,284 +0.9

France 129,257 150,390 -14.1 1,467,924 1,513,932 -3.0

UK 92,573 94,094 -1.6 1,519,016 1,571,986 -3.4

Italy 88,939 91,792 -3.1 1,325,162 1,366,390 -3.0

Spain 74,490 107,692 -30.8 883,649 973,545 -9.2

EU Total 1,041,856 1,137,173 -8.4 10,520,238 10,864,053 -3.2

July personal loan rates

Supplier Interest rate Comments

John Lewis You must be 18 years or over, You must have a 2.9% Finance minimum income of £10,000. Customers must be a UK resident and have an annual M&S Bank 2.9% income £10,000+.

Tesco 2.9% Customers must be aged between 18 and 74.

Customers must be aged 21 or over and have a AA 3.0% minimum annual income of £12,000.

Clydesdale Bank 3.0% Customers must be aged 18 or over.

Yorkshire Bank 3.0% Customers must be aged 18 or over.

New customers must be aged between 21 and 70 and AA 3.1% have a minimum annual income of £12,000. Must be aged between 18 and 74 and have a Admiral 3.1% minimum annual income of £10,000. Customers must aged between 21 and 70 and have Post Office Money 3.2% an annual income of £12,000. Customers must be aged 18 or over and have an Ikano Bank 3.5% annual income of £10,000. Rates apply to an £8,500 loan, repayable over four years Source: moneysupermarket.com FLA Vehicle Recovery Scheme (with HPI Crushwatch) Top 5 marques recovered, July Most expensive models recovered, July

Make Quantity Value Make Model Police Force Value

Vauxhall 158 £691,000 Lamborghini Aventador Metropolitan Police – Perivale £154,600

Ford 152 £884,435 Mclaren 600LT Charlton Pound £146,400

Mercedes-Benz 148 £2,428,200 Lamborghini Huracan Charles Wilson £128,600

Audi 144 £1,874,275 Mercedes-Benz G Class Metropolitan Police – Perivale £115,400

BMW 141 £1,595,045 Ferrari R8 Derbyshire Constabulary £108,700

police force of the month July recovery update Metropolitan Total HPI Crushwatch enquiries 11,782 Total finance hits 1,302 value of vehicles seized Value of finance hits £12,668,030

£3,579,000 HPI Crushwatch is an online service that aims to help lenders reclaim vehicles with outstanding finance before they are crushed.

22 | September 2019 | Motor Finance

MF September 178.indd 22 20/09/2019 11:46:24 databank

motor finance statistics (FLA) analysis Cars bought on finance by consumers through dealerships Figures released today by the Finance & Leasing Association (FLA) show that the % change 3 months % change 12 months % change Jun 2019 on prev. to Jun on prev. to Jun on prev. point of sale (POS) consumer car finance year 2019 year 2019 year market fell by 3% in June 2019. NEW CARS The POS consumer new car finance Value of advances (£m) 1,646 -4 4,841 -3 19,291 -1 market reported a fall in new business

Number of cars 79,276 -5 230,080 -6 940,568 -4 volumes of 5% in June compared with the same month in 2018, while the used CARS value of new business fell by 4%. Value of advances (£m) 1,468 0 4,663 +1 17,962 +7 Commenting on the figures, Geraldine Number of cars 119,506 -1 382,291 -1 1,466,408 +3 Kilkelly, Head of Research and Chief Economist at the FLA, said: Cars bought on finance by businesses “The POS consumer used car finance % change 3 months % change 12 months % change market reported a record total for new Jun 2019 on prev. to Jun on prev. to Jun on prev. year 2019 year 2019 year business volumes in the first half of the NEW CARS year of almost 772,000 vehicles, while the modest fall in POS consumer new Number of cars 35,341 -7 117,134 -4 394,882 -8 car finance in the first six months of used CARS 2019 was in line with wider trends in Number of cars 5,651 +13 14,276 +14 61,063 +5 private new car sales.”

Share of consumer car purchases financed at Percentage point change the dealership in the from previous year 91.0% past 12 months -1.0 Motor industry statistics (SMMT) analysis The UK new car market falls -1.6% in new car registrations by vehicle type August, to 92,573 registrations. Good news for zero emission vehicle Market share Market share Aug 2019 Aug 2018 % Change Aug 2019 (%) Aug 2018 (%) uptake, with registrations up nearly Diesel 24,484 27,884 -12.2 26.4 29.6 fivefold to take record 3.4% market Petrol 59,019 58,418 +1.0 63.8 62.1 share as hybrids also register growth. BEV 3,147 659 +377.5 3.4 0.7 Industry calls for policies and PHEV 907 3,215 -71.8 1.0 3.4 measures to boost uptake of latest, HEV 4,014 2,947 +36.2 4.3 3.1 lowest emission vehicles. MHEV diesel 514 116 343.1 0.6 0.1 Mike Hawes, SMMT Chief Executive, MHEV petrol 488 855 -42.9 0.5 0.9 said, “August is typically the new car Total 92,573 94,094 -1.6 market’s quietest month so the huge increase in EV registrations is very market shares by brand – TOP 10 february best visible but especially welcome. It’s Market share Market share great to see consumers respond to the Brand Aug sales Trend selling models Aug 2019 (%) Aug 2018 (%) massive industry investment made over

Volkswagen 11,334 ^ 12.24 11.96 Fiesta 3,978 many years. While this is encouraging, these figures also show the scale of the Ford 10,764 v 11.63 11.91 Golf 3,439 challenge ahead. It’s a long road to zero Audi 9,062 ^ 9.79 8.06 Other 2,082 and while manufacturers can deliver Mercedes-Benz 5,040 ^ 5.44 5.17 Ford Focus 1,886 the technology, they can’t dictate the Vauxhall 4,864 v 12.24 11.96 A Class 1,880 pace of uptake. To support a smooth BMW 4,853 v 5.24 6.37 Ford Kuga 1,770 transition and deliver environmental gains now, we need a long-term Toyota 4,205 ^ 4.54 3.85 T-Roc 1,685 government commitment to measures SEAT 3,610 v 3.90 3.85 Tiguan 1,632 that give consumers confidence to Peugeot 3,608 v 3.90 4.21 Corsa 1,592 invest in the latest technologies that Kia 3,452 v 3.73 3.77 Ecosport 1,477 best suit their needs.”

www.motorfinanceonline.com | 23

MF September 178.indd 23 20/09/2019 11:46:25 MF September 178.indd 24 20/09/2019 11:46:27