The Financial Conduct Authority (FCA) has announced it will looking at lending practices in the motor finance market.
The move was announced in its business plan for 2017/2018. The FCA said “it was concerned that there may be some irresponsible lending in the sector. We are concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry. 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. Following the review, we will assess whether and how to intervene in the market.”
The Telegraph has reported that The Bank of England (BoE) had confirmed regulators were investigating car finance which could lead to them enforcing tougher affordability tests, as they do with mortgages. In its plan, the FCA said that indebtedness was on the rise, with 16 million UK residents now holding savings of less than £100, but the amount of money being borrowed to buy new cars has trebled over the past eight years to more than £30 billion
Responding to this news, Adrian Dally, Head of Motor Finance at the Finance & Leasing Association (FLA) commented: “The motor finance industry is committed to responsible lending and to high standards of customer service. We will continue to work closely with the Financial Conduct Authority to ensure they have a good understanding of this highly competitive and diverse market.”
The Bank of England has also confirmed that it considering more stringent regulations which would usher in strict affordability checks in a bid to avoid a PCP-prompted financial crisis.
Around one-in-nine UK new car sales are now facilitated by a PCP and concerns are growing that the loans are stretching consumer’s finances with fears that a rise interest rates or a fall in residual values prompted by ever-rising levels of nearly-new used vehicle stocks could spark a financial crash.
Speaking to The Telegraph, which reported that the BoE was considering strict new regulations on Friday, Steve Baker MP, a member of the Treasury Select Committee, said: “It’s a terrifying prospect to think that car loans are being securitised in the way mortgages were in the run-up to the crash. Our economy may well be too dependent on cheap credit and the Bank of England should urgently explore this problem.”