FCA Motor Finance Report Published
We have recently seen the long-anticipated Financial Conduct Authority (FCA) Motor Finance Review published and it’s gathered huge attention from the motoring industry.
As many predicted, a spotlight was shone on Personal Contract Purchase (PCP) agreements. The review highlighting that in 60% of the market as much as £300m is being overcharged to customers by dealerships every year. This is done by inflating interest payments to obtain higher commissions for the business.
The FCA is the independent regulatory body for the UK Financial Sector. Formerly known as the Financial Services Authority (FSA), the FCA led review reveals that the PCP format is too complex and lacks transparency for customers; something the FCA has been trying to combat since it’s inception six years ago, following the PPI scandal.
An estimated 90% of all new cars sold through dealerships are on a PCP contract which allow you to rent the vehicle for an allotted amount of time, with a final balloon payment made to secure ownership of the vehicle.
The FCA investigation has found that across a 4-year term, the average customer was overpaying around £1,100 in interest and at the end of the agreement, the customer would find themselves in negative equity with an inflated balloon payment still to be paid.
Alternative research has also shown that customers can save an average of over £4,000 with leasing, compared to a PCP agreement.
What Does This Mean?
This all means that in the upcoming wake of the likely bad press around PCP agreements, we can expect to see many more customers looking at Personal Contract Hire (PCH) agreements as a viable financing option for their new cars.
It would also mean that the FCA and the British Vehicle Rental and Leasing Association (BVRLA) will have to further scrutinise current practices, no doubt resulting in much more transparent services for the consumer.
Whilst it is commonly accepted practise for companies to earn commission on contract agreements, the complexities of these agreements - between lenders and suppliers - are likely to become the target for more scrutiny and impending clarification measures.
Much like the banks and insurance companies have strived to do in the wake of the PPI scandal, the motoring industry will be forced to take huge steps in obtaining the public’s trust.
At Car Lease Special Offers we have always believed that the PCH model to be the clearest and simplest form of vehicle acquisition and it is likely that more companies will follow suit.