Better safe than sorry?
Do lenders need to make enquiries about vehicle recalls?

Published 08 April 2025

The recent (and largely unsuccessful) increase in claims against motor finance lenders relating to a vehicle’s previous keeper history has brought into focus what checks (if any) lenders need to make before entering into a motor finance agreement. In this article, we consider whether there is a need to make enquiries about any outstanding recalls before supplying a vehicle. The General Product Safety Regulations The General Product Safety Regulations 2005 (the GPSR) sets out obligations on producers and distributors to only place ‘safe’ products onto the market. Producers are defined as the “manufacturer of the product”, so a motor finance lender is unlikely to fall into this definition. Distributors are defined as “a professional in the supply chain whose activity does not affect the safety properties of a product”. Could a motor finance lender be a distributor? The short answer is that it could. The GPSR does not give any examples. However, the Driver and Vehicle Standards Agency (the DVSA) issued a code on interpreting the GPSR entitled ‘Vehicle safety defects and recalls: Code of practice’ (the Code). Annex A says a distributor will “typically be an importer, a dealer, wholesaler or other seller of the product” (so could include a motor finance lender entering into credit or hire agreements). What obligations are imposed on distributors? Distributors do not have the same obligations as a producer under the GPSR. By Regulation 8(1)(a), distributors must act with “due care in order to help ensure compliance with the applicable safety requirements” and ensure that they do not supply a product to any person which they know, or should have presumed, is a “dangerous product”. A “dangerous product” is one which is not a “safe product”. A “safe product” is a product which under normal use does not present any risk, or only the minimum risks compatible with the product’s use. The sanction for failing to comply is a criminal one. If a motor finance lender is a distributor, how should it comply with the GPSR? In April 2014, the DVSA provided guidance entitled ‘A guide to safety recalls in the used vehicle industry’. The DVSA’s view is that “a product with an outstanding safety recall should not be passed to a consumer”. The guidance also said that if “you are selling a vehicle to a consumer, you will need to check for outstanding recalls and these safety recalls must be attended prior to the consumer purchasing the vehicle”. While motor finance lenders are likely to be distributors, it is far from clear whether they should be undertaking vehicle recall checks before entering into a finance agreement. The guidance was aimed at “any persons or company who is in the vehicle supply chain which results in the sale of a used vehicle or product to a consumer” (so could include a motor finance lender). However, and importantly, the guidance also states that if “you are passing vehicles within the trade you need to share information about any outstanding safety recalls” (an obligation found …

A bump in the road
The effect of the Court of Appeal’s decision in Johnson

Published 08 April 2025

The Court of Appeal’s decision in Johnson v FirstRand Bank Limited (London Branch) [2024] EWCA Civ 1282 came as a considerable surprise to the motor finance industry (and many other financial services industries). This short article considers the decision and what will happen next. The facts Each claim involved a consumer visiting a dealer, selecting a vehicle and wanting finance. This table sets out the key facts. The Court of Appeal decided: The context of the relationship between the dealer and the customer is “important”. The position may therefore be different where either (a) the dealer is not making a profit from the vehicle’s sale or (b) the customer is sophisticated. The Court decided that the borrowers were owed a ‘disinterested duty’ because “it was part of the credit broker’s role to provide information to the lenders on the customer’s behalf, and to the customer about the available finance. The very nature of the duties which the credit broker undertook gave rise to a ‘disinterested duty’ unless the broker made it clear to the consumer that they could not act impartially”. The dealers also owed an “ad hoc fiduciary duty running in tandem with the disinterested duty, arising from the nature of the relationship, the tasks with which the brokers were entrusted, and the obligation of loyalty which is inherent in the disinterested duty”. The dealers were not carrying on a purely administrative role. Instead, the dealers “were in a position to take advantage of their vulnerable customers and there was a reasonable and understandable expectation that they would act in their best interests”, meaning they owed them fiduciary duties. Some problems of the decision This is the first time that the Court of Appeal had considered duties owed by dealers to their customers. Before then, the County Court regularly decided that dealers did not owe such duties. This was expected: no regulator had ever said that dealers were fiduciaries. In fact, the FCA’s own rules did not require any disclosure of the amount of commission and the basis of its calculation (which is what the Court thought was necessary in these appeals). The usual approach of regulation is to require firms to take additional steps. What happens next? Both lenders have made applications to the Supreme Court seeking permission to appeal. It is likely that a decision on permission will be made in early 2025. If permission is granted, there will be a hearing. But this is unlikely to happen before summer 2025 with a decision to follow. In the meantime, the FCA is consulting on whether to extend the pause to motor finance commission complaints to commissions which were not discretionary (but it seems likely it will). Many County Courts are already staying claims pending the Supreme Court’s decision. It seems there will be considerable focus on what happens at the Supreme Court which will hopefully reach a sensible place and restore order to the market.

Unlocking lending opportunities
The truth about open banking and loan approvals

Published 08 April 2025

Brandon Wallace, Senior Product Manager at financial data intelligence company Bud, explains why, contrary to misconceptions, use of open banking data in the affordability assessment process can help lenders increase approvals without taking on extra risk. It’s a common misconception in the lending industry that using open banking data in lending processes will lead to an increase in declines. This perspective comes from the idea that more data means discovering more reasons to reject borrowers. But the opposite is true: open banking data can help lenders discover reasons to approve customers they would have otherwise declined, all while maintaining or even reducing risk. It’s true that better data enables lenders to decline higher risk customers (leading to a better performing portfolio). However, the few extra declines are outweighed by the increase in approvals lenders achieve by using open banking data to take a second look at thin-file, poor credit, or credit-invisible customers. These applicants are almost always declined when assessed on credit reference agency data alone. At Bud, we’ve seen first-hand how open banking data, when combined with traditional credit reference data, opens up new lending opportunities. Our clients are reporting that they’re accepting more customers as a result of supplementing credit reference agency data with open banking data. One of our credit broker clients, TotallyMoney, saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone. One of our credit broker clients saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone. In terms of reducing risk, open banking data is proving equally valuable. One of our lending clients, Moneyboat, has seen a 20% reduction in missed payments since incorporating open banking data into their affordability assessments. This demonstrates how transactional data can identify risky behaviours—such as loan stacking, high Buy-Now Pay-Later use, or problematic gambling —before they result in defaults. Beyond increasing approvals and reducing risk, open banking also offers significant operational efficiencies for lenders. By streamlining the lending application process, open banking reduces the need for manual data entry and analysis, resulting in faster decision-making and lower operational costs. For instance, our client Blackbullion reduced application times from forty minutes to less than five minutes by incorporating open banking data into their application process. Moneyboat also saw impressive gains, achieving a 25% reduction in processing time for returning customers and a 16% reduction for new customers. With the right partner, integrating open banking into your existing systems and process is seamless, allowing lenders to reap the benefits of efficiency, speed, and reduced costs without overhauling their operations. The time for lenders to fully adopt open banking is now. Rather than being a barrier to lending, it is a powerful tool that can unlock lending opportunities while supporting customers who have been underserved by traditional credit assessment methods.

Access to credit
Key themes from Martha Stokes CCTA Conference panel discussion

Published 08 April 2025

I had the pleasure of joining a panel on access to responsible credit at the recent CCTA Conference, alongside experts on this issue from government and industry. It was great to hear the views and suggestions of my fellow panellists, in particular the importance of collaboration and the potential for partnerships between mainstream and alternative lenders. As I said at the conference, the FCA recognises the importance of credit in people’s lives, to help people manage their finances and short-term or unexpected cash flow issues. We want to support access to credit for those who can afford it, as we set out in our Dear CEO letter on the ‘FCA Strategy for Consumer Lending’ issued earlier this year. Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Let me set out what that looks like in practice. Financial inclusion is a priority At the FCA we’ve made financial inclusion a priority – this is something we are doing across the board, not just in credit but in access to cash, insurance and investment advice. As Nikhil, our Chief Executive, said at StepChange Connected recently, affordable credit helps consumers manage their finances and short-term or unexpected cash flow issues. If you are outside the financial system or cannot access credit, you’ll find it harder to get back on your feet when things go wrong – like the sudden expense of a car or appliance failing. Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Contraction in the high-cost market may have made credit harder to access for some financially vulnerable groups. But we do not want people turning to illegal money lenders. So, we need to take a balanced and consistent approach when we engage with firms. We need to balance inclusion with ensuring that firms lend responsibly. We don’t want to see consumers being given credit that they cannot afford to repay. For some consumers, credit will not be the right answer. We care about financial inclusion and use our tools, powers and influence to improve access and the treatment of customers, prioritising our efforts in areas that have the greatest impact. Collaborating widely Access to affordable credit is not something that the FCA, or any other body, can solve alone – it requires a collaborative approach. All of us, including trade bodies and firms, have an important role to play in engaging on this topic and working together to find ways to tackle this issue. By using our convening power to foster collaboration and innovation, we have brought together government, industry, trade bodies, researchers and other stakeholders to encourage initiatives that support access to affordable credit. This has resulted in some tangible change. For example, we worked with government to make it easier for registered social landlords to direct tenants to affordable credit. The FCA sees an important role for innovation in developing solutions which tackle financial exclusion. We work closely …

Securing the future of UK collections
The power of network tokenisation

Published 08 April 2025

In the UK collections industry, security, efficiency, and customer trust are essential. As digital payments become the norm, financial service companies face a unique set of challenges, including managing recurring payments securely, reducing operational costs, and minimising fraud risks. One technology proving highly valuable in this landscape is network tokenisation – the replacement of traditional card details with unique, merchant-specific digital tokens. But how exactly are network tokens helping UK collections? Enhancing secuirty and reducing fraud For a sector handling sensitive financial information daily, security is a non-negotiable priority. Network tokens allow lenders to store a secure token rather than the Primary Account Number (PAN) of a consumer’s card, reducing the risk of exposure in the event of a data breach. This system makes network tokens virtually useless to anyone outside of a specific merchant environment, providing an added layer of fraud protection. In 2023, UK Finance reported that £1.17 billion was stolen through unauthorised and authorised fraud, highlighting the critical need for enhanced security measures. Boosting authorisation rates & improving cash flow A primary challenge for lenders is maintaining high authorisation rates, especially with recurring payments. With traditional card-on-file payments, expired or reissued cards can lead to disruptions, resulting in payment failures and increased collections costs. Network tokens, however, can be dynamically updated. When a card is replaced, the associated token is automatically updated, reducing failed payments. In fact, Acquired.com has observed a notable improvement in success rates of recurring payments with the implementation of network tokens, with some customers seeing up to a 4% uplift in success rates (Source: Acquired.com Hub). In the UK, failed payments contribute to significant revenue losses annually, especially within industries reliant on recurring payments, such as lenders. By adopting network tokenisation, lenders can avoid disruptions, ensuring more payments go through on time. This boosts success rates, helping to stabilise cash flow and making the entire collection process more efficient. Reducing operational costs Another advantage of network tokens in collections is their cost-saving potential. Network tokens streamline payment processing, reducing the need for manual card detail updates and, consequently, lowering administrative burdens. This is especially beneficial for lenders handling large volumes of accounts, where the costs associated with payment processing and transaction management can be significant. Additionally, many card networks impose higher fees for non-tokenised transactions, meaning network tokenisation could reduce transaction fees over time. Simplifying customer experience A seamless experience is essential for reducing friction in the collections process. Network tokens enable smooth payment continuity without the need for customers to re-enter details if a card is lost or expires. This automatic update capability reduces churn, improves customer satisfaction, and allows lenders to maintain continuous payment schedules with minimal disruption. A future-forward solution for collections The utilisation of network tokens in the UK collections industry marks a key step forward. With better security, higher authorisation rates, reduced costs, and a frictionless customer experience, network tokens empower agencies to improve efficiency and meet increasing regulatory and consumer demands. As the industry moves towards digital-first …

From policy to practice
Addressing the challenge of supporting vulnerable customers

Published 08 April 2025

Ensuring customers have an appropriate degree of protection is central to the FCAs mission. Under the Vulnerable Customer Guidance (FG21/1), the FCA expects vulnerable customers to receive outcomes equal to the treatment of other customers. Treatment must be consistent and fair across the end-to-end product and customer lifecycle. The FCA’s focus on vulnerability continues to sharpen. In March 2024, they commenced a two-stage review into how firms are supporting vulnerable customers. Last month Graeme Reynolds (Director of Consumers and Competition) outlined that some firms have failed to think about vulnerability proactively and need to act imminently. With findings from the review due to be shared by the end of 2024, this couldn’t be more clear. Under Consumer Duty, the FCA expects firms to: ensure colleagues have the right skills and capability to recognise and respond to the needs of vulnerable customers understand and respond to customer needs throughout product design, flexible customer service and communications monitor whether they are responding to the needs of customers with characteristics of vulnerability, making improvements where this is not happening. Challenges faced by firms Based on our research and working with firms across the market, firms face a number of challenges in supporting vulnerable customers, including: Identification difficulties: Vulnerable customers may not self-identify, and hidden vulnerabilities can be challenging to recognise. Communication barriers: Complex language, inaccessible formats, and digital exclusion can hinder communication and service access. Inadequate staff training: Lack of awareness and inconsistent handling can lead to inappropriate responses and missed signs of vulnerability. Insufficiently tailored products and services: Rigid processes, unsuitable products, and inflexible payment options can exacerbate customer difficulties. Data privacy concerns: Balancing requirements for customer information with data privacy. Operational challenges: Resource constraints, lack of coordination, and inadequate monitoring. Overcoming challenges To overcome these challenges, ensuring vulnerable customers receive meaningful support, and good outcomes, consideration should be given to: Robust Vulnerable Customer Operating Model: Encompassing identification, customer interaction, product design, governance, and continuous improvement. Staff training: Equipping colleagues with the skills to effectively recognise and respond to customer vulnerabilities. Inclusive products and services: Adapting products, services, and communication methods to meet the diverse needs of vulnerable customers. Technology: Utilising analytics, machine learning, AI, and digital accessibility tools to enhance identification, communication, and support delivery. Customer-centric approach: Prioritising fair treatment of vulnerable customers through dedicated support services, accessible communication channels, and tailored solutions. Effectively supporting vulnerable customers can enhance reputation, drive business growth and innovation, improve risk management and foster a purpose-driven culture. For more information, download our ‘Supporting Customers in Vulnerable Circumstances’ white paper.

The wind of change
Harnessing data to support financially vulnerable customers

Published 08 April 2025

Amid continued economic uncertainty and an unexpected inflation rise to 3.9% in January, many UK residents are turning to borrowing to help manage their money and make ends meet. In fact, our research found that one in five UK adults – approximately 11 million people – now consider themselves financially vulnerable and at risk of harm due to their personal circumstances, including poor health, life changes like new caring responsibilities, or difficulty handling financial or emotional stress. For the financially vulnerable, economic shocks, such as an unexpected bill or a small dip in income, can have a significant impact on not only their financial health, but also on their wellbeing. With nearly seven in ten financially vulnerable people feeling stressed when dealing with their finances, it can be harder for these consumers to make informed financial decisions, putting them at greater risk of fraud and scams. Credit is often a lifeline for vulnerable consumers to meet shortfalls in their finances. However, many can’t access the credit products they need – with low credit scores being cited as the most common reason that people had their credit application turned down. This is where fintechs and financial service providers have a critical role to play. The industry needs to shift from a one-size-fits-all approach to lending, to one that recognises and adapts to the challenges vulnerable consumers face. Lenders should harness data to offer financially vulnerable customers the care and support they need to make informed credit decisions and improve their financial wellbeing. We’re already seeing some innovation in this space, with fintechs developing tools that provide personalised financial insights, helping people take control of their money. Leveraging vulnerability and affordability insights can enable lenders to provide access to lower-cost credit and preventing borrowers from falling into problem debt. We are the first credit reference agency to partner with the Vulnerability Registration Service, giving our clients access to an independent register of vulnerable individuals. This enables them to identify vulnerabilities and make informed decisions in accordance with regulatory guidance. Ultimately, a fair and inclusive financial system is one that balances credit access with consumer care and protection. Through responsible lending and access to credit products tailored to the needs of financially vulnerable consumers, the industry can foster greater financial inclusion to ensure each consumer is reliably and safely represented in the marketplace. At the same time, businesses can empower consumers to avoid unmanageable debt and build financial resilience.

HM Treasury publishes action plan on regulation – aims to support growth

Published 18 March 2025

Yesterday, the Chancellor met top regulator bosses in Downing Street to discuss an action plan on regulation. The review aims to cut the administrative cost of regulation, make Britain the best place to do business and drive economic growth. We applaud the ambition and the speed at which the Government has been moving. Action plan on regulation The plan aims to overhaul the regulatory system so that it: supports growth. Provide a regulatory system that not only protects consumers and supports competition, but also encourages new investment, innovation, and growth. is targeted and proportionate. The government should regulate only where necessary and allow space for discretion and good behaviour. is transparent and predictable. To foster the certainty essential for investment, it is vital that the regulatory regime is stable, predictable and consistent. adapts to keep pace with innovation. Our approach to regulation must allow the UK to take advantage of new technologies and innovations. We welcome these aims. Recently, we wrote about the importance of the smaller non-bank lenders we represent. A big part of their challenge is regulatory. We have long discussed the need to reduce the regulatory burden on firms, but we are increasingly also discussing the importance of certainty. Yes, as the Government has identified, compliance costs have increased considerably over recent years. We have long said that regulators’ cost-benefit work can be disappointing. It can lack an understanding of actual costs and seem to be built with banks in mind. Late last year, we wrote in the media about new proposals from the Financial Conduct Authority to ask lenders to provide detailed information about every transaction they carry out. This follows a vast amount of work to implement the Consumer Duty. The burden is real and pressing. Certainty is just as important as the burden. However, certainty is equally vital. It is key to have confidence that you understand the regulator’s expectations. It allows you to grow and develop without second-guessing everything you do. Let’s be very clear. This is not about deregulation. In many areas, certainty is about providing more direction, not less. It has essential knock-on impacts. Certainty gives firms confidence that they are compliant, but it is also vital in attracting the investment they need for growth. Certainty also ensures access to credit for individuals who struggle to borrow elsewhere, as firms can continue to offer services to these consumers rather than stepping back out of fear. The action plan also includes some specific measures for financial services. The Treasury will also explore ways to streamline financial services regulators’ ‘have regards’ to improve predictability and business confidence. Regulators will now also be subject to performance reviews twice a year. They will be judged against a set of targets agreed with the businesses they affect, such as how quickly they decide on planning applications and new licenses for companies and products. It would be good to see the FCA supporting new entrants into the alternative credit sector. Examining the role of the Financial Ombudsman …

Call for Input on mass redress – an opportunity for change

Published 06 February 2025

Last week we submitted our response to the Call for Input on modernising the redress system. We took this as an opportunity to raise a couple of wider key topics that we were keen to include around the complaints process. One of these is dialogue with the industry around complaints, to improve outcomes for all concerned – firms, the Ombudsman, and ultimately, the consumer. While we believe there are some tangible changes that can be made to the process (which we raise within our submission) there is a need for a more significant change within the FOS, and how it interacts with the industry and other stakeholders. We believe that the FOS can significantly improve the current framework for managing matters with wider implications by developing a new culture, fostering greater transparency, collaboration, and efficiency. The Wider Implications Framework’s (WIF) role could be enhanced to better manage systemic issues and prevent escalation. Early identification of risks through the WIF would also reduce the likelihood of costly mass redress events and encourage proactive handling of systemic issues to deliver consistent and timely redress for consumers. So, we are calling for regular feedback loops and consultation mechanisms to be established to identify emerging trends collaboratively. This could include real-time communication channels and the establishment of stakeholder forums. Through this firms, consumer representatives and trade bodies could directly engage with the regulators. This would strengthen relationships between regulators, industry, and consumer groups. It would provide valuable insights to inform regulatory actions. There is an opportunity to enhance transparency, involving those outside the regulatory family also. Another area we have identified is the issue of time limits and the ambiguity that surrounds them. We strongly believe the FCA and FOS should review the current time limits for referring complaints to provide greater certainty for firms while maintaining fair consumer protections. The current rules—particularly the “three-year from the date of knowledge” provision introduce significant ambiguity, leaving firms vulnerable to open-ended liability and increasing the risk of inconsistent outcomes. To address this, we propose a few changes. We recommend introducing an absolute longstop from the event date, giving rise to the complaint. This would provide firms with a clear liability endpoint, while ensuring consumers have ample time to bring complaints. The “date you knew” rule should also be clarified. The three-year rule is subjective and inconsistently applied. We have seen the FOS place an unreasonable burden on firms to prove when consumers become aware of their right to complain. There should be a clear burden of proof that balances fairness between firms and consumers, ensuring firms are not unfairly burdened. We believe that this will help market integrity and competitiveness. In creating a predictable regulatory environment, it would encourage investment and innovation that has been so hard to achieve in alternative lending given their recent experience of the complaints system. These are two examples of areas that could be improved both to better handle mass redress events but also the wider complaints framework so it functions …

The importance of smaller lenders

Published 23 January 2025

The news that Santander may leave the UK market has grabbed the headlines. There has been, and we are sure there will continue to be, a lot of discussion about the regulatory burden. The costs mentioned are significant, often more like telephone numbers. The risk is that we focus on those big numbers and the big brands. However, elsewhere, some lenders face burdens that are certainly smaller numbers but can significantly impact that firm. Last year, firms moved to implement the Consumer Duty, introducing new systems and structures. Over recent months, we have seen movement on new data systems required by the FCA. There are plans for a new governance body for credit information funded primarily by lenders. All of this adds up and makes it more challenging to operate. We would suggest that smaller independent lenders frequently provide agility, innovation, and customisation to meet the needs of UK families. We mustn’t lose sight of their health. Filling the gaps Filling that gap has always been an idea that is close to the CCTA. We were formed in 1891 by a small group of retailers and lenders that saw the need for new regulated credit products. Smaller lenders have always looked for the gaps as the banks focus on smoothing their processes. Many large banks focus on high-volume, standardised lending products, prioritising economies of scale. Unfortunately, this approach often leaves certain groups with non-standard credit histories or special borrowing requirements without access to financial support. Doing so, they help ensure financial inclusion, enabling consumers and small businesses to access credit that might otherwise be unavailable. This is particularly important in the consumer credit sector, where access to affordable lending can make a critical difference in people’s lives. Driving innovation and competition Smaller lenders are often at the forefront of innovation in financial services. Unencumbered by the bureaucratic layers that can stifle creativity in larger institutions, they are more nimble in adapting to emerging technologies and market trends. Many have pioneered advancements in digital lending platforms, open banking, and data-driven credit assessments, setting new standards for efficiency and customer experience. Moreover, smaller lenders foster competition within the financial services industry. Their presence challenges the dominance of larger players, encouraging a broader range of products and services at more competitive rates. This dynamic benefits consumers, ensuring they can access choices that better suit their needs. Supporting local economies The impact of smaller lenders extends beyond their immediate customers to the communities they serve. Unlike global banking giants, many smaller lenders have strong ties to their local areas, which enables them to understand and respond to the unique challenges and opportunities within those communities. Smaller lenders often take the time to build relationships and trust within their communities, creating a ripple effect of economic resilience and opportunity. That includes CDFIs and credit unions, alongside commercial branch-based lenders. This localised approach is particularly evident in areas where access to finance is limited due to geographic or socioeconomic factors. We have seen the loss of …

An update on motor finance

Published 19 December 2024

As many of you will know, the motor finance world was hit hard in October with the Court of Appeal judgment in the Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcraft v Close Brothers cases. The Court of Appeal decided it was unlawful for motor finance brokers to receive a commission from the lender providing motor finance without getting the customer’s informed consent to the payment. This decision surprised many because this case marks a significant shift in how Courts view lenders’ duties toward consumers in cases involving commission payments. Firms were tasked with making changes to their processes very quickly. This decision came on the back of what has already been a very busy year for motor finance providers. In January this year, the FCA launched a review of historical motor finance Discretionary Commission Arrangements (DCAs). The review seeks to understand if there was widespread misconduct related to DCAs before the 2021 ban, if consumers have lost out and, if so, the best way to make sure appropriate compensation is paid in an orderly, consistent and efficient way. Alongside the review, motor finance firms were given more time to provide final responses to complaints about motor finance where a DCA was involved, and consumers more time to refer their complaints to the FOS. This was to prevent inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while the FCA reviewed the issue and determined the best way forward. In September, the FCA further extended this until 4 December 2025. Before deciding its next steps, the FCA wanted to take account of relevant court decisions. These included the judicial review by Barclays Partner Finance of a Financial Ombudsman decision relating to a DCA in a motor finance agreement and the recent Court of Appeal judgment mentioned above. Last week we got the news that the Supreme Court will hear an appeal against the Court of Appeal’s judgment. This will likely take place between January and mid-April next year. While the Supreme Court will hear an appeal, firms must still comply with the law as it stands when arranging new motor finance agreements. There was further movement today when the FCA confirmed that it will extend the time firms have to respond to complaints about motor finance agreements, not involving a DCA. Firms now have until after 4 December 2025 to provide a final response to non-DCAs, in line with the extension already provided for complaints involving DCAs. The regulator has also provided guidance for firms when communicating with affected customers. If you are reviewing your approach, we suggest this as an essential checklist of issues. So, it has undoubtedly been a tumultuous year for the sector. Firms should be focusing on ensuring that they are communicating with customers in the right way, whilst also preparing for the continuation of the FCA’s review. The FCA plans to set out next steps in May 2025, but this will be somewhat dependent on the progress of the appeal to the Supreme Court and the …

Building trust in the lending process
The role of transparency and decision systems

Published 28 November 2024

In the competitive landscape of alternative lending, trust is not merely an asset; it is a necessity. As consumers increasingly seek clarity and fairness, lenders must step up their game, creating a transparent environment where borrowers feel informed and secure in their decisions. The key to achieving this lies in the integration of effective decision systems that prioritise transparency, ultimately fostering stronger relationships between lenders and borrowers. Transparency in lending means more than just clear communication; it involves a commitment to openness about policies, decision-making criteria, and the inherent risks of borrowing. Transparency in lending … involves a commitment to openness about policies, decision-making criteria, and the inherent risks of borrowing. For consumers, understanding loan terms, approval factors, and potential costs is crucial for making informed financial choices. When lenders fail to communicate transparently, it can lead to confusion, dissatisfaction, and distrust, damaging customer relationships. Enter decision systems, which are significantly transforming how lenders interact with borrowers. By leveraging data analytics and automation, these systems establish clear, objective criteria for evaluating loan applications. Envision a world where consumers fully understand the factors that influence their loan approvals, providing them with clarity and confidence in their financial decisions. This transparency not only alleviates uncertainty but also fosters a sense of control throughout the lending process. 1. Standardised Criteria With decision systems, lenders can develop standardised criteria for assessing borrower eligibility. When borrowers understand the elements that influence their applications, they feel informed about their chances of approval and the rationale behind decisions, reducing anxiety and uncertainty. 2. Real-Time Feedback Decision systems also offer real-time feedback during the application process. This means borrowers receive immediate updates about their application status, required documentation, and potential hurdles. Such proactive communication instils a sense of involvement and reassurance, making borrowers feel valued and informed. 3. Data Transparency These systems also provide insights into how and what types of data are used for evaluations and the weight assigned to each factor. This transparency builds confidence in the system and demonstrates a commitment to ethical lending practices. But it’s not just about technology; it’s about ethics. Trust is built on a foundation of ethical behaviour and lenders must prioritise responsible practices to cultivate lasting relationships with borrowers. Decision systems that emphasise transparency align closely with these values, creating accountability within organisations. Clear documentation and decision-making processes help ensure fair treatment of applications, mitigating the risk of bias. Incorporating feedback mechanisms allows lenders to listen to their borrowers, fostering a culture of continuous improvement. This dialogue enables lenders to refine their processes based on real experiences, further enhancing trust. Call to action The call to action is clear: embrace transparency through effective decision systems. By committing to open communication, standardised criteria, and ethical practices, lenders can create an environment of trust that benefits everyone involved. Together we can build a lending market where consumers feel empowered to make informed financial choices, ensuring a brighter future for borrowers and lenders alike.