VAPs could attract FCA scrutiny, warns iVendi
Dealers have been warned they could face scrutiny from the Financial Conduct Authority around the sale of value-added products (VAPs) and warranties.
Recent investigations into hidden commissions has turned the spotlight on motor finance companies and dealerships.
With increased focus on compliance, iVendi has said that dealerships need to examine how they sell VAPs to prospective car buyers.
iVendi CEO James Tew said: “In the vast majority of cases, VAPs are simply rolled into the motor finance deal but there are problems with this approach. The biggest is that the average length of funding is around four years while the average length of warranty is probably half that or less. Consumers are paying for cover that has ended.
“These issues are making motor finance providers increasingly nervous and some are questioning whether they can continue to operate in this way without there eventually being some intervention from the FCA.”
Complex deals
“Some funders already split VAPs from the car and effectively create two deals but this is quite complex and arguably creates its own compliance problems. There is also the possibility of funding VAPs using some form of separate short-term lending but this tends to be expensive and also increases the cost to the consumer in the initial months, so is not ideal.
“While there are no easy solutions to this issue, we have been working on something for several months that we believe provides an effective answer and intend to announce details before the end of the year.”
