New technology is needed to help dealers deliver positive outcomes in relation to Consumer Duty, says iVendi.
Most of the major providers in the motor finance market are switching to a risk-based pricing model. Current systems do not always allow dealers of consumers to see the actual interest rate they would pay until an application is submitted.
James Tew, CEO at iVendi, said: “We’re in a situation where four of the largest motor finance providers are moving to a risk-based model for some or all of their customers. It is very much the direction in which the market is moving.
“There are obvious advantages for the lender and the consumer. Instead of a one-size-fits-all interest rate, the price paid depends on the perceived risk.”
iVendi has called for a way of easily comparing the actual rates being offered by a panel of lenders for a specific consumer where a risk-based model is being used.
Currently, the quotes provided will be based on the best available rate but not considering whether the consumer will qualify for it.
Tew added: “Making a number of applications is bad for a credit file, whatever the reason, and could damage the consumer’s credit score, so that’s ultimately a bad solution.
“There is the possibility of introducing a pre-approval process, where the consumer provides sufficient information for the lender to assess the rate that would be paid.
“However, this is not currently really supported across the industry and is something that would require a lot of groundwork, although we are looking into it.”
Picking the lender that offers the best commission is not a solution either.
“In the wake of the current FCA inquiry into Discretionary Commission Arrangements, this is an even worse course of action than in the past,” added Tew.
“All dealers should be moving towards much greater transparency, and the industry needs to find ways of achieving this under risk-based pricing.”