THE Financial Conduct Authority (FCA) is to investigate the motor finance industry.
There are concerns that consumers may be borrowing more than they can afford.
The FCA stated in its Business Plan 2017/18 that:
“We are concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry.
“We will conduct an exploratory piece of work to identify who uses these products and assess the sales processes, whether the products cause harm and the due diligence that firms undertake before providing motor finance. Following the review we will assess whether and how to intervene in the market.”
At this stage the FCA investigation is clearly targeted at motor finance, but there are concerns – voiced by members of the Leasing Broker Federation – that the scope of the investigation could widen.
Jane Pocock, managing director of Vans Direct, articulated this concern:
“I see the FCA investigation spilling over into car leasing. Cars are the next biggest debt behind the mortgage – so areas of affordability and treating customers fairly are key issues.”
Andrew Starr, managing director of Bluepoppy Vehicle Solutions, concurred:
“Affordability is an essential FCA measure. As we sell all types of finance, from HP to car leases, I can see how the FCA investigation may well migrate to leasing brokers.”
Meanwhile, the Finance and Leasing Association (FLA) has pledged to work closely with FCA on the probe, which follows the introduction of compliance regulations for the leasing broker industry last year. That saw the BVRLA widen its range of training, accreditation and professional development services.
Adrian Dally, FLA head of motor finance, said: “The motor finance industry is committed to responsible lending and to high standards of customer service.
“We will continue to work closely with the Financial Conduct Authority to ensure they have a good understanding of this highly competitive and diverse market.”
In 2016, FLA members provided £41 billion of new finance to help households and businesses purchase cars. Over 86% of all private new car registrations in the UK were financed by FLA members.
This month the Bank of England’s financial policy committee highlighted concerns at the rapid growth in consumer credit after finding dealership car finance has seen the fastest expansion, ahead of credit cards and personal loans. The annual growth rate for consumer credit reached 10.9% last November – the fastest rate since 2005 – before easing over the winter.
A key area is the growth of Personal Contract Purchase (PCP), the dominant form of car loan that has transformed the industry, which requires a fixed period contract based on deducting the predicted future value of the asset at the end of the term to keep payments low.
More than two-thirds of cars are now financed through finance agreements, which has not only encouraged record sales, but which draws customers back to take out a new finance package for a new car every two or three years which also maintains a steady flow of relatively new used cars also attracting financial services.