Over the past few years there’s been an exponential growth in the car leasing broker industry. It’s matured into a credible vehicle sourcing option, recognised by all the major vehicle manufacturers and primary funders as a valuable and important route to market.
Success will always gather followers, and there will always be those who, in a hairsbreadth, jump on the bandwagon and take full advantage of a growing sector, hoping to emulate, or even better, the main players.
For the budding entrepreneur then, the setting up of a car brokerage business, on paper at least, doesn’t seem to be a costly one, nor too complex. There’s no need for a prominent high street shop front, not when a well-designed website can deliver the same illusion of integrity and establishment. And as for office equipment, a kitchen table, laptop and printer should suffice for the first few months, past the “teething” stage.
As for any legal requirements, the main thing that’s needed is a consumer credit licence, which, for the past four decades, has only entailed some form filling and a cheque made payable to the Office of Fair Trading. Ever since the introduction of the 1974 Consumer Credit Act, if credit is being offered, and irrespective of the business type, then a Consumer Credit Licence (CCL) needs to be held. The furniture retailer who offers four years’ interest-free credit, even the dentist who promises a Hollywood smile on a fixed-monthly term, should all be in receipt of a valid CCL.
But there’s a problem. With more than 50,000 licences currently in circulation in the UK, and policed quite liberally, the system has been left open to misuse, which became evident in 2013, when payday lenders found themselves in front of a Houses of Parliament Select Committee Meeting. The committee’s report paid particular and obvious attention to the payday loan sector but it also cast a long shadow over the whole system, including vehicles, suggesting a shake-up was well overdue. It’s now the responsibility of the Financial Conduct Authority (FCA) to issue credit consumer licences, and regulate them.
Even before the committee’s report was published the FCA had been consulted on a new regulatory framework. They had underlined key aspects, suggesting more stringent affordability checks and stronger regulation to ensure only those companies with appropriate mechanism for judging affordability would be able to operate in the market.
Although none of these changes will have a direct impact on the fleet manager who uses a broker to assist in financing vehicles, it will make a leasing agreement more transparent, with terms and conditions clearly set out, and give the consumer (ie. fleet) more rights. It’s also hoped these changes will wheedle out and curtail the activities of the unscrupulous boiler-room car brokerage firms who spring up from nowhere, offering too-good-to-be-true leasing deals (because invariably they are), take deposit monies and then disappear into the ether just before the bailiffs knock on the door.
The new rules, which came into force on April 1 2014, now require the FCA to conduct an in-depth level of due diligence on all those seeking authority to offer a credit service (Consumer Credit Licences are not issued anymore, they are FCA granted – the subtext may have changed but the headline remains the same).
Chris Smith, operations director for broker Lease Options, welcomes these new rules. He says: ‘the introduction of the enhanced regulations the FCA are imposing on the industry will only improve and further the reputation of brokers who act diligently and compliantly with the Regulator.’
Once granted, the FCA still has the power to revoke a CCL if their guidelines and regulations are not vehemently adhered to. Anyone found in breach of these rules can expect to pay heavy fines and a criminal prosecution for the worst offenders.
The meticulousness of this new application process, and the assignment of a case officer to assess the suitability of each individual business, and then monitor them should give a guarantee, of sorts, that the less-than-reputable vehicle broker won’t fall through the FCA’s ever-closing net. Inevitably though, there will always be a rogue trader waiting for the opportunity to slip through.
Undoubtedly, these new measures will alleviate some of that uncertainty, and when it comes to choosing the right broker further authentication is simple to acquire, if needed. Ideally, a good broker will have been established for many years and will be able to demonstrate testimonials from existing customers. The best brokers will all offer various funding options and have direct relationships with the manufacturer. If more certainty is required, ask if they are members of the British Vehicle Rental and Leasing Association (BVRLA).
If they are, it means that you can go to them if you have a complaint or are unable to resolve a dispute. Their conciliation process is quick and free, and means you have the same level of support regardless of whether you have leased from a member directly or via one through a broker.
BVRLA spokesman Jamie Fretwell explains: ‘Using a BVRLA member means you’ll get a high standard of service, quality assurance and expertise, with all members adhering to our mandatory Code of Conduct, which is there to ensure that the customer benefits from the highest standards of service, fair terms and conditions, transparent and accurate information and a complaint resolution service. The code requires members to provide safe and roadworthy vehicles, use accurate advertising and give clear information about their products and services. Any company that doesn’t have the BVRLA logo may not operate to such high standards, resulting in a worse service.’
The advantages of using a brokerage service, especially for smaller businesses where they lease less than 50 vehicles, are immeasurable, as Smith explains: ‘Essentially the majority of brokers utilise more than one funding source and therefore offer a competitive alternative to a single funder. Larger brokers, such as ourselves, use a panel of mainstream funders (in our case seven finance houses) which enables us to ensure that we can provide the most competitive option for the customer.
‘Additionally, links with manufacturers (where available) provide in many cases stronger terms than those available to mainstream leasing companies (manufacturers recognise that the broker channel is highly competent at promoting specific products and influencing purchasing decisions). This means that many brokers can offer better leasing terms than those directly from the funders themselves. Leasing Options has long-standing arrangements with most major vehicle manufacturers and can combine the benefit of attractively priced vehicles with the best funding options from the panel used.’
In addition to the obvious advantages of competitive pricing, brokers will claim to offer a more personalised approach rather than the more corporate stance from the larger leasing company, whose primary business revolves around high volume fleet customers. Also, the range of finance products is wide from a broker too, incorporating not only contract hire and PCH, but also finance lease, contract purchase and PCP.
‘There will also be occasions where credit facilities may be exhausted with a single source funder,’ says Smith, ‘and the broker can spread the credit lines between funders to satisfy customer needs.’
Brokers will generally acquire the chosen vehicles via the main dealer network and will seek to establish long term relationships with reputable and capable dealers whose service standards would be monitored accordingly. Some brokers, like Leasing Options, will also negotiate directly with manufacturers and from time to time commit to volume and batch deals to facilitate keener pricing.
The level of ongoing support from the broker will depend on the size of the customer and the number of vehicles leased. A good broker, however, would ensure ongoing support and contact with customers of all shapes and sizes and in most cases would be on hand to assist with “in-life” queries and additional vehicle requirements.
With more stringent FCA rules, industry codes of practice and manufacturers more confident that their product will be sold in the right way, it seems that brokering is undergoing a resurgence.
CASE STUDY – Marchants
It’s no secret that in 2009, when the UK recession was biting at its hardest, estate agencies were one of the first in the firing line.
‘In the past, we had always paid cash for our cars.’ says Paul da Costa, managing director of Brighton-based Marchants Estate Agents, ‘but if we were to survive the economic downturn we needed to radicalise our entire business, and quickly. Not only was the housing market dying on its feet, our fleet of 12 vehicles, averaging an age of three years, all needed to be replaced. After weighing up all the options on offer, and wanting to ring fence our modest war chest of cash, just in case things got even worse, I found the most beneficial way we could do it was to finance them all. It really was a no-brainer. I’m only sorry we hadn’t made the switch sooner.
‘Since then, we’ve used a variety of methods to finance our vehicles but settled on contract hire coupled together with a service plan best suited to my company. For the first time since going into business for myself, some 30 years ago, I don’t have to worry about vehicle depreciation or a surprise maintenance bill.
‘Last week we took delivery of two new Mercedes. One was a replacement for a car which was nearing the end of its contract life, while the other was leased for a new member of staff. This was arranged by Eagle Oak, who supplied the two previous cars. Again, they sourced the cars and offered them to us on a pair of very favourable 36-month term, service-maintenance contracts – bettering the deal the main Mercedes-Benz dealer could offer. Each car is financed by two different lenders, presumably to take advantage of the lowest rates, with one being funded through the French bank, Arval BNP, while the other is through Lex Leasing.’