In this article, we will look at how car dealerships can sell more cars and other vehicles by offering car finance with a consumer credit license.
Increasingly, people are buying cars on finance, in one form or another. In fact, during 2019, over 90% of privately purchased cars bought were paid for through finance.
1. Applying for the consumer credit license – limited permission v full permission
If your primary business activity is selling vehicles as a dealership and you would like to refer customers to lenders that wish to finance the purchase of the vehicle, you will require a limited permission consumer credit license. The process for obtaining the limited permission license is shorter whilst the application fee is much lower. If you are not a car dealer and your main activity will be referring car finance leads to lenders, then you must apply for the full permission version of the consumer credit license. You must apply to the Financial Conduct Authority and obtain approval for the consumer credit license.
2. Completing the license application
In your application form you will be required to provide the following information:
- company business details
- future plans and details of your dealership or business
- your financial forecasts for your business
- details of what your business does for example products and services offered including your revenue model
- details of how you will treat customers fairly
- description of your systems and controls
- your compliance arrangements including a compliance monitoring plan
- details of your approved persons and controllers (shareholders)
3. How long it takes to obtain your license
You should allow 1-2 months for the limited permission license and around 3 months for the full permission version.
4. Choosing car finance lenders
For most car dealerships, finance is offered by working with lenders, such as Close Brothers, and Motor Novo. So, for example, you would typically enter into a commercial relationship with lenders. With most lenders, for every customer you refer to the lender who ends up being accepted for finance and agrees to proceed, you will be paid a commission for the referral. Commission rates can vary from 2% -5%. You may wish to work with a number of lenders who cater to different types of borrowers. For example, you may wish to work with a lender who focuses on lending to borrowers with a good credit history profile, and another lender who focuses on lending to people with less than perfect credit history or lower income.
5. Managing your business in a compliant manner.
In order to maintain your consumer credit license, you must ensure that you manage your business in a compliant manner, ensuring good conduct at all times. For example, you must ensure that any financial promotions or marketing material is fair, accurate and not misleading to your customers. Similarly, you must treat your customers fairly. You must demonstrate that this is at the heart of your business.
The following is a list of the 6 outcomes you must work towards in ensuring the fair treatment of customers:
Outcome 1: Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.
Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.