The Financial Conduct Authority announced back in 2017 that they were investigating the motor financing industry, to ensure that consumers were not being caused harm, to understand how finance products were sold and, to see if the market is functioning as well as it could be. In March, the FCA published an update of this review, setting out the areas of concern that they have highlighted for further investigation. One of those areas is PCP or Personal Contract Purchase.
And finance experts are eagerly anticipating the publication of the FCA’s findings. If the FCA rule the sales processes employed by firms caused consumers harm, it will mean that PCP’s were mis-sold and it could open the flood gates for thousands of people who have purchased a car with PCP.
What is a PCP agreement?
PCP deals are a popular option for buying a car because they can be very flexible. They also allow people to purchase a more expensive car than they would of otherwise been able to afford. A PCP involves a monthly fixed payment and usually a low rate of interest. The finance deal covers part of the cost of a new car, usually around a third of the list price, which means that the monthly outgoings are lower than if you take out a loan to buy a car outright. If you want to own the car at the end of the agreement, then you will need to pay a large lump sum, known as a balloon payment. If you want to have a new car, a PCP can make a lot of sense. You simply give back your car to the dealer and get a new one every three or four years. However, there are some serious downsides to PCP contracts and, if you haven’t read every detail hidden in the small print, your PCP can end up costing serious money. The financial penalties involved in PCP can be for minor damages to the car and exceeding the mileage limit. These are costs you may not have accounted for when taking out your PCP agreement.
The real issue with PCP is the way in which they have been sold. The FCA has raised concerns about a lack of transparency, conflicts of interest and irresponsible lending by car dealers and lenders. In making their decision, the FCA want to assess the following areas:
1. Are firms managing the risk that asses valuations could fall and making sure they are adequately pricing rick?
2. Are firms taking the right steps to make sure that they lend responsibly, by appropriately assessing whether customers can afford the product in question?
3. Is the information provided to potential customers by firms sufficiently clear and transparent, do customers understand the risks involved so they can make informed decisions?
4. Are there any conflicts of interest from commission arrangements between lenders and dealers?
So if you think you may have been mi-sold a PCP agreement, watch this space. We will update as soon as the FCA’s findings are released later this month.