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Investigation into UK car finance mis-selling is set to create the “perfect storm”

Simon Hill, managing director of Total Motion, has warned that an official probe into the UK car finance market will reveal mis-selling on the scale of the PPI scandal.


An official investigation into car finance mis-selling is set to create the “perfect storm” during 2018, and the UK motor industry needs to be prepared for the fall-out.

Scrutiny of the sector by the Financial Conduct Authority (FCA) – driven by Government concerns over mounting consumer debt –will, we believe, reveal widespread mis-selling of motor finance on the scale of the PPI scandal.

Serious concerns were raised some time ago about PCP (Personal Contract Purchases) and PCH (Personal Contract Hire) deals being sold to people who couldn’t afford them.

And, as their actions clearly demonstrate, the regulators are now going far beyond giving unscrupulous dears a slap on the wrist and telling them to clean up their act.

This scandal will have a far-reaching impact on our sector and is set to be as big as PPI, with motor dealers, lenders and brokers having to shell out hundreds of millions of pounds in fines.

There will be companies who have mis-sold finance on literally hundreds of cars and who won’t be able to pay the huge fines. The investigation is also going to mean a big headache for the banks who are still recovering from forking 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 finances market.

And, fuelled by Bank of England concerns about Britain’s burgeoning consumer debt crisis, the FCA is scrutinising the industry’s sales practices and procedures, with an update on its findings due in the first quarter of 2018.

Recent media exposes have shown that, worryingly, many salespeople don’t know how PCP and PCH deals work and often fail to check if the buyer can realistically afford the vehicle.

Dealers are so keen to make a sale that they let people 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 haven’t a hope of meeting the monthly payments.

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.

When sold correctly they’re a great option for motorists; businesses like ours carry out full affordability checks and ensure customers are fully aware of how the products work before they sign the contract.

Unfortunately though that won’t be everyone’s experience. Many people will be concerned that they might have been mis-sold their PCP or PCH and we’d strongly recommend that they get in touch with the FCA.