Car finance under the spotlight
It is difficult to know who to trust these days. The emissions scandal has called into question the credibility of more than just a single car manufacturer but it seems that, once again, the financial sectors may not have been acting as transparently as they should. Now where have we heard that before?
The main impetus for this blog has been caused by not only what I have heard through the motor trade but is also related to the formal Daily Mail story that was run earlier in the summer about people being offered car loans that they could not afford. Indeed, it is well-known that finance deals, such as PCP – Personal Contract Purchase – and PCH – Personal Contract Hire, have been the driving factor in new car sales in recent years. In confidence, several new motor car dealers admitted to me that certain car manufacturers use finance deals to tempt more people into acquiring something that they were unable to afford otherwise.
It is worth noting, however, that the Finance and Leasing Association, at the time of writing, is challenging that article and has been reported as saying “Nobody was mis-sold anything. They are reporting on mystery shoppers…nothing was sent through to a finance company for credit checking.”
Car loan defaults
Yet, in an uncomfortable deja-vu, the newspaper reported that a ‘surge’ of motorists is defaulting on payments and referenced the Bank of England’s concerns about household consumer debt, especially in relation to car finance, which has grown by 15% in a year. The question is, now that new car sales are falling, how long will it be before the birds come home to roost – presuming that there is a nest left for them?
The answer could be as early as next year. The Financial Conduct Authority (FCA) has claimed that it will review the world of motor finance. This will include specifically, “the areas of consumer harm in the motor finance market.” This will include looking at whether, or not, providers are lending responsibly, if there are any conflicts of interest from commission arrangements and risk management in terms of miscalculated asset depreciation.
As many car companies own their own finance arms, the findings are awaited eagerly and we shall report back on the FCA’s conclusions, when they are available…