Papers renew attack on motor finance – have they uncovered a problem?

After a break from the first salvo of national critics the past week has seen renewed criticism of the motor finance industry from the press

Chief among these was a front page article from the Daily Mail, looking at how PCP was being offered to people who would clearly struggle to afford them.

In one example, a reporter who claimed to be an unemployed 24 year old was told by a dealer he would ‘be fine’ applying for credit for a new £15,375 Audi A1 in a Scottish dealership.

In a Mazda showroom, in another example, the reporter claimed to be a part time worker in his early twenties who’d spent the past year travelling. The dealer reportedly told him: “If you’re a £25-30,000 car, then they start asking about how much you earn. But when you’re looking at a £11-12,000 car it’s alright.”

Other dealers reportedly gave reporters advice on how to improve the chance of a successful credit application by leaving out information.

There was one fatal flaw in this expose – the undercover reporters never actually applied for finance. It’s one thing for a dealer to tell someone they should be able to access credit, but it is quite another for a customer to be actually accepted on it.

In the first series of the Simpsons, in the episode The Call of the Simpsons, the Simpsons attempt to buy an RV they clearly won’t be able to afford from Bob’s RV Round-up, using credit. The scene begins with the salesman (‘Bob’) tell Homer the application process is a formality. Long story short the Simpsons lack the credit rating and affordability for the expensive RV, the application is therefore rejected, and they end up buying a small beaten up old model instead (for the still not inconsiderable $350 a month).

Obviously this is an old episode, played out with comic exaggerations, but despite this it does highlight the fact that until the customer has formally been offered the credit, one cannot say the customer was miss-sold to, or sold an inappropriate finance offer – simply because until they are accepted, they haven’t actually bought anything.

This isn’t to say the report didn’t highlight anything worrisome for credit companies. For a start, in my view, it is worrying that dealerships are encouraging customers to apply for finance they are ill suited to and might find unaffordable.

There are a few scenarios that could be played out of what might happen if the application went ahead. One is the customer is rejected (which, if they cannot afford the finance would be most appropriate). In this situation, the customer has not received a good service from the dealer, and might actually damage their credit profile as a result.

The customer could then either leave feeling rejected, or they could be moved onto a cheaper model.

The other scenario is that the customer’s application is successful, and they walk away with a brand new car. In order to know more about this, we’d need to know more about the Mail’s undercover reporter’s story in order to judge anything. All captive houses will include a credit check when customers apply, and this should include some sort of affordability check.

The Mail reported that the finance companies questioned responded by pointing out that no credit application had been made and such an application would have resulted in a decline. Vauxhall and Suzuki have both launched investigations into the matter, the paper added.

With the papers currently circling the industry, looking for anything to criticise, it might be worth just checking with your dealers that they understand the finance product, the risks it carries, and what is appropriate to offer.