10 ‘takeaways’ from the FCA review of the motor finance sector
Dated: 15th March 2018
Today the FCA published the latest update on its work in the motor finance sector.
Here we’ve rounded up the 10 ‘takeaways’ with items 7–10 of particular note for the leasebroking sector.
- 88% of new car registrations are now supported by some sort of finance, up from 59% in 2008.
- PCP contracts make up 66% of the value of new and used car finance.
- Motor finance now makes up 24% of total unsecured consumer debt, up from 16% in 2013.
- Both PRA and FCA have concluded that asset valuations and risk management processes at the largest motor finance lenders appear to be robust such that a severe fall in used car prices would not materially affect their business models.
- Motor finance tends to be concentrated towards consumers with better credit scores.
- In the next phase of their work FCA will be exploring whether lenders are adequately assessing affordability, particularly in relation to higher risk customers.
- FCA has looked more closely at commission arrangements between funders and dealers. They are concerned that arrangements that allow the dealer to adjust the interest rate to earn higher commission and volume related bonuses could give rise to conflicts of interest resulting in higher finance charges to consumers. FCA plan to review the effectiveness of lenders’ controls to mitigate this risk which will include assessing “the extent to which lenders comply with relevant requirements and take steps to make sure that brokers acting on their behalf comply with CONC provisions such as disclosure of status, remuneration and commissions”.
- FCA are assessing the quality and transparency of information provided to consumers.
- FCA is continuing to review websites and states it has “seen cases where information is not sufficiently prominent and may not meet our requirements”.
- FCA are conducting a mystery shopping exercise to assess “whether consumers have access to clear, timely and transparent information at the point of taking out motor finance” and “whether consumers are aware of the risks and benefits of different motor finance options, including the cost implications”.
In-fact little has changed from the update published earlier in the year. The regulator has stated “We expect to complete our review of the motor finance market by the end of September 2018. At that stage, we will publish our findings, setting out any areas of concern we have identified and how we intend to tackle them.”
From this latest update it is not clear the extent to which FCA is also looking at hire agreements, in addition to credit agreements. In some places “lenders” are referred to, and in others “motor finance” is used. We suspect this is just in the wording and the review will consider all types of funding arrangements.
You can view the FCA update here: https://www.fca.org.uk/news/news-stories/motor-finance-update.