Finance broker Evolution Funding has revealed that the recent FCA changes to commission models for motor finance have landed positively for customers and dealers.
In a webinar hosted by the broker, panel discussion revolved around the impact on the customer experience and the effect on rates, finance penetration and commission earnings.
Fixed APR versus Credit Score-Based Pricing
Of the two prime pricing models discussed – Fixed APR and Credit Score-based Pricing (CSBP) – 60% of dealers have opted for Fixed and 40% for CSBP. Pre and post the changes, Fixed APR has seen insignificant change in average APR and customer credit score, and an increase of £17 per case in average commission.
In comparison CSBP has led to a drop of nearly 0.4% in average APR, a 16-point increase in credit score and an increase of £42 per case in average commission, which was in part helped by an increase in average advance. Lee Streets, Evolution CEO, said:
“Soft search is starting to gain traction in the prime market. It has to because credit score-based pricing models cannot function effectively without it.”
Dealer sentiment about the changes
During research into dealer sentiment, retailers cited that removing negotiation on rates has led to an easier and more transparent customer journey when taking out point of sale finance. In addition, earnings are supported through sales staff being unable to discount on rates.
Evolution divulged that despite significant changes to regulatory disclosures in their customer journey, the number of customers making commission disclosure requests was negligible. The panel expressed concerns over the size and variations of commission disclosure wording, questioning whether consumers might be disengaging due to information overload.
Overall, the message was positive, with Lee Streets, Evolution CEO, saying:
“Secondary brokers being allowed to keep discretionary commission ‘windows’ was a positive decision by the FCA. This has allowed us to work with retailers and lenders to provide commission models which are flexible but managed, since we have the insight and data to put robust controls, oversight and reporting in place.
“I believe that this this is a ‘once in a generation’ opportunity for point of sale to become a transparent and dynamic offering, ultimately leading to increased finance penetrations. One of the key drivers has to be further innovation in commission models because ‘one rate fits all’ is not a long-term solution.”