How Motor Dealers Can Legally Offer Customer Finance

Why This Guide Matters

Motor finance is a cornerstone of the UK automotive market, with most consumers relying on loans or credit agreements to purchase vehicles. For motor dealers, being able to offer finance options directly can mean the difference between closing a sale and losing a customer. However, this is not simply a matter of filling out forms and handing over keys. The Financial Conduct Authority (FCA) sets clear rules and expectations. Non-compliance can result in hefty penalties, loss of reputation, or even being barred from trading. This guide provides up-to-date, practical advice for UK motor dealers looking to offer finance legally. It aims to demystify the regulatory landscape, clarify your responsibilities, and ensure you are equipped to serve your customers properly and profitably.

The Basics Explained

Offering finance is not an automatic right for motor dealers. Any business wishing to broker or arrange finance for customers must be authorised by the FCA or act as an appointed representative of an authorised firm. This is not optional: even introducing customers to a lender or providing information about credit agreements falls within the scope of FCA regulation.

Dealers must:

• Apply for FCA authorisation (or partner with an authorised broker)

• Comply with the Consumer Credit Act 1974 and related rules

• Adhere to the FCA’s Consumer Duty, putting customer outcomes first

Finance options typically include:

• Hire Purchase (HP)

• Personal Contract Purchase (PCP)

• Personal loans

Transparency, suitability, and fair treatment underpin every transaction. Being clear about costs, commissions, and terms is fundamental, as is assessing the customer’s ability to repay. The finance process is regulated because it can have far-reaching financial consequences for customers.

How It Affects You

For motor dealers, the legal requirement to be authorised is significant. Trading without FCA authorisation can result in criminal sanctions and customers could have agreements rendered unenforceable. Beyond legality, compliance creates a foundation of trust. Customers are more likely to complete a purchase with a dealer who is transparent and reputable.

Key implications include:

• Operational changes: Staff must be trained to understand regulatory requirements and treat customers fairly.

• Documentation: All pre-contract information, quotes, and agreements must be accurate, clear, and provided in a timely manner.

• Customer checks: Affordability and creditworthiness assessments are mandatory. This is not just a tick-box exercise—dealers must evidence their decision-making process.

• Ongoing oversight: The FCA expects regular reviews of sales practices, complaint handling, and product suitability.

The upshot is that compliance is not a one-off project. It requires ongoing attention, investment in training, and a willingness to adapt to regulatory changes.

Our Approach

At Kandoo, we recognise that most dealers want to focus on selling vehicles, not navigating regulatory minefields. As a specialist retail finance broker, we support dealers in offering finance to customers legally and effectively.

How we help:

• FCA Authorisation Guidance: We help dealers understand what kind of authorisation is required and assist with the application process. For those not wishing to apply directly, we offer the option to become an Appointed Representative under our permissions.

• Training and Compliance Support: Kandoo provides staff training on key FCA principles, including Treating Customers Fairly (TCF) and the new Consumer Duty. We supply documentation templates and compliance checklists tailored to your business.

• Product Access and Choice: Through our panel of reputable lenders, we enable dealers to offer a full range of finance products, including HP, PCP, and personal loans. This ensures customers have access to options suited to their needs and circumstances.

• Commission Disclosure and Transparency: We help dealers structure finance deals in line with FCA rules, ensuring all fees and commissions are disclosed upfront. Our approach minimises conflicts of interest and enhances customer trust.

• Ongoing Compliance Monitoring: Regulation does not stand still. We provide regular updates, policy reviews, and guidance on emerging FCA expectations to keep your processes current.

Our goal is to make compliant motor finance accessible, straightforward, and commercially rewarding for UK dealers, regardless of size. By partnering with Kandoo, you can focus on sales, safe in the knowledge that your finance offering is robust and legal.

Before You Decide

Before taking the leap into regulated finance, consider:

• Business Model: Are you prepared to invest in compliance and staff training, or would you prefer to outsource regulatory responsibilities?

• Customer Base: What finance products suit your typical customers? Understanding your market helps you select appropriate lenders and agreements.

• Resource Commitment: Will you dedicate staff to ongoing compliance and oversight? Regulation is not set-and-forget.

• Reputation Risk: Non-compliance can damage your business long-term. Is your current process robust enough to withstand FCA scrutiny?

• Costs vs. Benefits: FCA fees, time spent on applications, and ongoing compliance costs should be weighed against the potential for increased sales and customer satisfaction.

A considered approach is best. Many dealers find that acting as an Appointed Representative through a reputable broker like Kandoo offers the best of both worlds: access to finance with minimal regulatory burden.

What’s Real, What’s Hype

There is a misconception that FCA regulation is simply a box-ticking exercise. In reality, the FCA regularly undertakes thematic reviews and mystery shops dealers. Breaches can lead to fines, redress, or even the suspension of business activities.

It’s also not true that only large dealerships can comply. Small and independent dealers can—and do—successfully operate with the right support. What matters is commitment to fair treatment, transparency, and continuous improvement.

Pros & Cons

While offering finance can boost sales and customer loyalty, it requires ongoing commitment and vigilance.

Other Options to Consider

If direct FCA authorisation or acting as a finance broker seems daunting, consider these alternatives:

• Appointed Representative Status: Partner with an authorised intermediary who assumes responsibility for regulatory compliance, training, and oversight.

• Limited Permission: For dealers who only carry out limited credit broking activities, the FCA offers a streamlined authorisation process at lower cost.

• Referral Agreements: Simply refer customers to a third-party lender or broker, rather than arranging finance yourself. Note: even referrals may trigger regulatory obligations, so check carefully.

• Non-regulated Finance: Certain business-to-business (B2B) finance transactions or those above a specific value threshold may fall outside FCA scope, but tread carefully and seek advice.

Each option has trade-offs around control, margin, and compliance responsibility. Assess which aligns best with your business’s goals and appetite for regulation.

FAQs

1. Do all motor dealers need FCA authorisation to offer finance?
Yes, unless you act solely as an Appointed Representative of an authorised firm or only refer customers without arranging finance. Most dealer finance activities require some form of FCA oversight.

2. What are the penalties for non-compliance?
Penalties can include fines, business restrictions, customer redress, and damage to reputation. In serious cases, unregulated credit broking is a criminal offence.

3. How long does FCA authorisation take?
It varies, but applications typically take 3–6 months, subject to completeness and complexity.

4. Can small or independent dealers comply with FCA rules?
Yes. Many small businesses either apply directly or operate as Appointed Representatives. The key is understanding responsibilities and seeking expert support where needed.

5. What consumer protections apply?
Customers benefit from the Consumer Credit Act, FCA rules, and access to the Financial Ombudsman Service in the event of disputes or complaints.

6. How does Kandoo support compliance?
We offer a full suite of compliance tools, training, documentation, and ongoing oversight, plus the option to become an Appointed Representative under our FCA permissions.

7. What finance products can I offer via Kandoo?
We provide access to a panel of lenders offering HP, PCP, personal loans, and other tailored finance solutions, all fully compliant with UK regulation.

Next Steps

If you are considering offering finance to customers, start by assessing your current compliance status. Reach out to reputable finance brokers or consult with the FCA for guidance. Kandoo is available to support you at every stage—from initial questions to full implementation. Get in touch to learn how we can help your dealership offer finance legally, efficiently, and profitably.