iVendi’s chief executive James Tew talked to Automotive Management about the motor finance opportunities for dealers and why rebuilding trust through transparency, earlier commission disclosure and safer ways to fund value-added products could mean the difference between profitable growth and the next compliance headache.
In a post-redress world where consumer confidence is low, what does maximising motor finance opportunities actually mean for dealers in 2026?
Number one is transparency. If people lack trust, then the only way to regain it is by being transparent. That’s certainly changed since commission disclosure, which came into force in 2024. But there is still a lot to do around transparency. Is the product right? Is there a preference to work with one lender and allow that lender to have first dibs on the customer? We see trust will be greatly enhanced through the transparency of showing a panel of lenders, and being able to demonstrate different products from different lenders, so that there is choice for the consumer.
We’ve been a big advocate of that for many years. We haven’t changed our approach. It’s just now we’re perhaps shouting more loudly about it, because it’s clearly what the Financial Conduct Authority (FCA) wants to see.
That’s not necessarily an issue on brand new cars where there is an interest-free offer from an OEM. Nothing is going to beat that. But certainly across used cars, there is little to no excuse for not offering choice.
After the Supreme Court decision and the scrutiny on “unsophisticated” consumers, what should dealers treat as the minimum standard of finance and commission explanation at the point of sale?
It’s making sure that any information is clear, concise and to the point, so that the consumer fully understands before that understanding is checked with the consumer. The rulebook also talks about disclosure in a timely manner. That, in itself, has been a challenge, because it’s been about getting that across in a timely manner prior to any customer detriment, which could be the use of a credit application search or a hard search. It’s about making sure that commission is disclosed as early as possible in the journey, certainly not whilst the customer is in the process of signing the finance agreement.
All this will come back to bite lenders and retailers if that is their process. We’re all pretty clear now what the FCA requires, so it’s down to lenders and retailers actioning those requirements. Lenders can’t keep on blaming systems. They’ve had plenty of time to change the systems and to change their approach.
Are you seeing that being applied out in the market?
The challenger lenders coming to the market are very tech savvy, very agile, and are making sure this happens. But you have got plenty of lenders where their process is still not up to speed, and who could be serving information earlier in the customer journey. There are still areas for improvement. Some lenders haven’t got the capability of getting commission disclosure out early enough in the process, which impacts what the retailer can do. A retailer would prefer consistency in the journey, because they may not know which lender is going to write the deal.
You’ve previously said funders are nervous about value-added products being rolled into finance.
Unfortunately, as we come out of one problem, motor finance redress, I have a strong belief that we’ll go straight into the funding of value-added products (VAPs). They are a necessity for most retailers to sell as margins and commissions get squeezed, and they provide a valuable source of dealer revenue. However, it is the funding of the VAP that creates a problem, and this would be where the regulator’s primary concern is.
Say you have an extended 12-month warranty, but you’re funding that on a five-year hire purchase agreement. There’s four years where there is no product value, but you are still paying interest for that product over five years. And that is where the primary concern is. Firms will need to prove fair value and also ensure that there is no foreseeable harm to the consumer. I don’t think they are doing that. The question is: what steps have been made by the retailer to ensure that the customer is well aware of this?
If you took an example of an £800 warranty at a typical 11.9% APR, interest charges would be in the magnitude of, say, £265 on that. But they’ll only have a 12-month benefit and an ongoing debt for the remaining 48 months. It’s going to fail a fair value test, unless there’s rigorous disclosures and vulnerability checks as well. The view may well be that it made the product affordable over the five years, but I do worry that this is the next big thing about to happen, and claims management companies (CMCs) will soon pick up on this. Then we have to start all over again. These CMCs have millions and millions of customers that have been subscribing to them, saying they’ve been missold motor finance. So it’s going to be very easy for them to go back and simply ask them if they had a value-added product funded.
Are you seeing early signs that indicate VAPs are heading for regulatory intervention, and what should dealers change now to stay ahead of it?
One major lender has stopped the funding of VAPs, so they obviously took a view that this is too risky. Other lenders are monitoring them closely, and many of the new lenders coming to market are not funding VAPs at all.
There are lenders which are breaking out the VAP products into a separate schedule so that the customer can see how much interest will be applied. Funding them separately is the answer, however, either through enabling the customer to fund them directly themselves (so the risk is purely with the customer) or using an option of a Buy Now, Pay Later facility. Many on the market will only offer a 10-month scheme, but iVendi is now offering up to 24 months with a Buy Now, Pay Later facility, which can either be interest-bearing or interest-free. This is going to ensure that the funding term doesn’t exceed the life of the product. The best way to do it is to completely segregate and have two separate agreements. That either could be with that same lender, or it could be with a third-party provider in a separate transaction.
Alternatively, get some pretty strong disclosures highlighting the costs, the disadvantages, and the problem with funding it over a longer period.
What does “good” look like for an alternative VAP funding model that keeps affordability, avoids LTV problems, and still passes a compliance sniff test?
We can’t change history, and unfortunately there’s been hundreds of millions of pounds worth of VAPs funded on finance agreements. But what we can do is help with future funding, and we can highlight to a retailer where there is an issue with the funding of VAPs through our platform. We’ve got some further enhancements that will be rolled out in the coming weeks, but also the ability to fund them separately through third-party payment providers.
The other big area with funding VAPs is that, traditionally, sale penetration is much greater where finance is sold, opening up new income channels. Cash customers represent more than 50% of all customers and represent a prime opportunity. Interest-free products could hugely increase both the basket size and the penetration. Yes, dealerships will pay a subsidy in doing that, but their overall profitability will grow without doubt.
How does a dealership know that they’re doing the right thing?
They can speak to us, which is quick and free. They should also be referring this issue to their compliance teams. If they’re in-house, they should all be aware of it. If they’re using external compliance teams, or use consumer credit lawyer specialists, they should get their feedback.