An official investigation into the UK car finance market looks set to create the “perfect storm” for the British motor industry in 2018, Total Motion claims.
Simon Hill, managing director of Leicester-based Total Motion, said scrutiny of the sector by the Financial Conduct Authority (FCA) – driven by Government concerns over mounting consumer debt –will reveal widespread mis-selling of motor finance on the scale of the PPI scandal.
He believes the investigation will result in leasing companies, dealers and brokers facing huge fines and even going out of business, as well as causing the banks a “big headache.”
Welcoming the FCA’s probe, Hill said: “Serious concerns were raised some time ago about the mis-selling of PCP (Personal Contract Purchases) and PCH (Personal Contract Hire) deals to people who couldn’t afford them, but we’ve now gone beyond giving dealers a slap on the wrist and telling them to clean up their act.
“This scandal is set to be as big as PPI, with dealers, lenders and brokers having to shell out hundreds of millions of pounds in fines.
“There will be companies who have mi-sold finance on literally hundreds of cars and who won’t be able to afford the huge fines. It’s also a big headache for the banks who are still recovering from paying out billions of pounds in PPI compensation.”
According to the FCA, UK consumers borrowed nearly £32 billion during 2016 alone to pay for their new or pre-owned cars, with car loans now the fastest growing area of the consumer finance market.
Fuelled by Bank of England concerns about Britain’s burgeoning consumer debt crisis, the FCA is scrutinising the industry’s sales practices and procedures and will publish an update on its findings in the first quarter of 2018.
Hill said: “Recent media investigations have shown that many salespeople don’t know how PCP and PCH deals work, and have let people who are on low incomes drive away in cars valued at £12,000 upwards for around £200 a month.
“The industry needs tightening up to protect consumers who just want a shiny new car and are being encouraged by dealers and leasing companies to fill their boots even though they can’t service the debt.
“We don’t want to be in the same situation as the US, where the mis-selling of car finance products on a catastrophic scale has led to a massive growth of the ‘repo man’ sector.”
PCH and PCP are both essentially car leasing products, with PCP allowing consumers the option of buying the vehicle at the end of the hire term. To avoid extra charges when the lease period is up, consumers must adhere to the agreed mileage limit and know what constitutes excessive wear and tear.
Originally introduced in the 1990s, PCP and PCH have become increasingly popular as companies opt out of company car schemes and manufacturers look for new ways to sell more cars and dump old stock.
Hill continued: “Businesses like ours carry out full affordability checks and ensure customers are fully aware of how the products work before they sign the contract.
“There will be many people out there though who think they might have been mis-sold their PCP or PCH and we’d strongly recommend that they get in touch with the FCA.
“The UK’s motor industry is facing a huge shake up and we need to be prepared for it.”