Personal Contract Payments: watchdog investigates car leasing market
Car finance is booming, but financial watchdog is worried about 'irresponsible' behaviour of lenders.
The Financial Conduct Authority (FCA) is launching an investigation into car leasing over concerns about irresponsible lending.
In recent years the amount of money being borrowed to buy new cars has exploded.
In 2016, 86% of new car sales were bought on finance, according to the Finance and Lending Association, with more than £30 billion borrowed in total.
Now there are concerns that the industry isn’t regulating itself properly and could be rife with irresponsible lending.
As a result the FCA has announced it is going to investigate the car leasing market over concerns about lending practices.
“We are concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry,” states the FCA.
“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.”
Poor lending practices
Back in 2014, new rules were brought in to govern lending practices in the mortgage industry after the financial crisis.
As we wrote earlier this year, there are fears that reckless lending in the motor industry could lead to the next credit crunch as car dealers and finance firms perform minimal credit checks before lending people the money to buy a car.
A recent investigation by the Telegraph found some car dealers were encouraging buyers to commit their entire monthly disposable income to repayments on a car that was worth more than their entire salary.
One mystery shopper with a £400 a month disposable income was offered a Volvo V40 Cross Country costing £397 a month.
In a separate study credit referencing firm Experian found that households with ‘stressed’ incomes make up a large number of the customers taking out car financing deals.
This raises concerns that too many people are being offered finance packages that they could quickly find unaffordable if their circumstances change.
Now there are increasing calls for a crackdown on car financing and for new rules to be put in place to make borrowers face the same level of stringent credit checks as they would if they were applying for a mortgage.
New car? Get a cheap insurance policy to go with it
What the industry says
In response to the FCA investigation, Adrian Dally, head of motor finance at the Finance & Leasing Association, said the industry was “committed to responsible lending”.
He added: “We will continue to work closely with the FCA to ensure they have a good understanding of this highly competitive and diverse market.”
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I agree with both russbiker and meldewreborn, we have a serious situation where a lot of the UK population are living in houses and driving cars they can't afford. In truth I could not care less if they are stupid enough to get in so deep but do hope that it doesn't end up effecting those whom have behaved in a more prudent manner. Present and past governments have deliberately manipulated interest rates encouraging the air-heads to spend whilst happily disregarding the hard-done-to savers. The way things are going I could see the powers-that-be passing a law making saving a criminal offence! They want your money!
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I recently bought a new car. I paid cash as apparently did 47% of lovemoney voters at the time I voted. But nearly 90% of personal car sales are made on finance. So Lovemoney voters are not representative of the UK population. At least with car finance there is some sort of asset backing the loan - even though it rapidly depreciates as soon as it leaves the forecourt. So the risk to lenders is less severe than with some other forms of lending - thought the total amount at risk may be comparatively high. This issue is just a symptom of the way some people live their lives today. Its not the way I was brought up and its not the way I tried to pass on to my sons. Is it though worrying that few people have rainy day savings and so many are maxed out on non-mortgage credit. They (and their lenders) are perhaps too vulnerable to life's shocks. I'm not aware that its a human right to have access to credit, so I think it would be sensible for society as a whole if the government took steps to limit credit availability to those who can better afford it. And it could start with its own finances!
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Why should the problem be with the lender and not the feckless borrower? It's always somebody else's fault with the irresponsible.
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20 April 2017