FCA is reviewing the motor finance market and it looks like standards will be tightened in this area.
In its 2017/18 business plan, the FCA said it would be looking to review the motor finance market. FCA said they are "concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry".
FCA wants firms to perform tougher checks on driver proposal forms, before letting them sign up for deals. This also spills over into the misselling of car loans market. Some people think that this may be the next PPI misselling scandal.
In lending terms, motor finance is second only to the mortgage market. The Finance and Leasing Association state that in 2016, FLA members provided £41 billion of new finance and financed over 86% of all private new car registrations in the UK. If you pay cash for your car, then you can almost sing “I am a one in ten”
Mortgage brokers and finance brokers have almost unrecognisably different standards – and herein lies the problem. Although there is no real evidence that the motor finance market is not working, or is being missold, it is unnerving that the market continues to grow and grow.
Some think that as PPI claims dry up claims management companies will look at personal contract plan finance agreements (or PCP) as the next misselling scandal.
There is some talk on whether promises or claims made by dealers - who tell the borrower that, at the end of the agreement, they should have sufficient funds leftover for a deposit to finance a new vehicle. This is normally the difference between the vehicle's valuation and the balance outstanding at the end of the agreement.
The FCA said it "will conduct an exploratory piece of work” in this area.
Tighten your seatbelts and start to dust off the compliance manuals! The growth in the consumer credit market is likely to lead to bubble bursting in one area or another and motor finance might well be the weak link.
IFAs may consider entering this new market with the expansion and availability of software quoting engines.
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