Exploration into the car finance industry
The FCA is going to conduct an exploration of the car finance industry.
The FCA is going to conduct an exploration of the car finance industry, based on concerns about “lack of transparency, potential conflicts of interest and irresponsible lending”.
My view on this is pretty simple: yes, there are some systemic issues with product and sales arrangements in the industry, which I’ve touched on before. But if anything, these are balance sheet, rather than compliance issues. In other words, it’s the outcomes for lenders, rather than consumers, that may be at risk.
And while I’d be naive to say that absolutely every lender is perfect in terms of its lending policies, the problematic areas lie at the very outer edges of the business, both in terms of market share and customer demographic.
By and large, this is an extremely clean industry, from captive volume business through to non-prime lending – but then, you already know that.
I’ll give the last word on this – for now at least – to Alphera director Spencer Halil, who welcomed the FCA’s announcement with these words:
“We welcome the news that the FCA will provide the motor finance industry with the opportunity to demonstrate the considerable steps which have already been taken in recent years, particularly in those areas identified by the regulator. Such a clear statement of intent will help to provide an environment in which the momentum of continual improvement is maintained. This can only be a good thing, when the ultimate goal is as important as ensuring good customer experiences and outcomes.”
As for car finance and innovation, Blue Motor Finance, an independent lender going from strength to strength, has just launched a new product – Extended Contract Purchase, or ECP – which is also being described by retailers as a potential gamechanger.
ECP is a surprisingly simple proposition, allowing customers to pay for a vehicle over a six- or seven-year term, with the option to settle the balance and purchase the asset at any point along the way. The length of the term means an attractive monthly price for budget-conscious buyers, without the possibilities of excess mileage charges, or the relative constraints or complexities of a PCP term end.
With the ubiquity of PCP being questioned by the regulator at present, more product options can only be a good thing for the market, and with research conducted by BMW Financial Services in 2015 finding that three quarters of consumers couldn’t explain what PCP was, there’s clearly an appetite for simplicity too