Motor Trade - Thematic Review - 2025

Summary

This is the Guernsey Financial Services Commission's first thematic review of the motor finance sector, examining how licensees under the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022 (the Law) and the LCF Rules and Guidance, 2023 (the Rules) treat customers when arranging or providing motor vehicle finance. It reports findings from an industry questionnaire, a public survey and site visits, and sets out areas of good practice and areas requiring improvement. It is an informational and supervisory report rather than new legislation, but it reiterates existing regulatory expectations and flags where firms must improve compliance.

Key findings and expectations

• Treating customers fairly: Firms generally comply with complaint-handling and cancellation rights, but must give customers clear explanations of key terms and document relevant policies and procedures.
• Commissions: Discretionary/difference-in-charges commission arrangements are no longer used (they are banned under the Law), but firms must improve disclosure of commissions paid by lenders to brokers and by brokers to sales staff.
• Arrears and forbearance: Firms are generally assessing customers in financial difficulty on a case-by-case basis and offering suitable forbearance options.
• APR disclosure: Firms must communicate the Annual Percentage Rate to customers in all cases, including individual finance quotations, before entering into a loan agreement.
• Advertising: Motor finance advertising is generally clear, but a minority of firms have not adhered to the advertising rules and must review compliance.
• Customer documentation: Terms and conditions and other customer-facing materials should be clear, in plain language, and accessible/understandable.
• Record-keeping: Motor traders must retain records of all motor finance agreements brokered on customers' behalf (finance proposal forms, pre-agreement loan information, relevant correspondence) on a searchable, centralised system, for the duration of the agreement and a reasonable period afterwards.

The review only covered activities of licensed firms; appointed motor traders, UK 'equivalent firms', commercial vehicle financing and basic referral arrangements fall outside the LCF licensing regime and were not assessed. The Commission indicates it has engaged directly with individual firms on specific compliance gaps identified during the review.

Key obligations

• Provide customers with clear explanations of all key terms of motor finance agreements and document relevant policies and procedures
• Disclose all commission arrangements to customers, including commissions paid by lenders to brokers and by brokers to individual sales staff, in line with the Rules
• Communicate the Annual Percentage Rate (APR) to customers in all cases, including when providing individual finance quotations, before entering into a loan agreement
• Ensure advertising and financial promotions relating to motor finance comply with the Rules and are not misleading
• Ensure terms and conditions and other customer documentation are clear, in plain language, and accessible to customers
• Motor traders must retain records of all motor finance agreements they broker, including finance proposal forms, pre-agreement loan information and relevant customer correspondence, on a searchable centralised system, for the duration of the agreement and a reasonable period afterwards
• Do not use difference-in-charges or other discretionary commission structures that reward higher interest rates with higher broker commission

Applies to

Lending, Credit and Finance (LCF) Part II licensees, motor finance lenders, motor finance brokers (including garages/motor traders), ancillary service providers