Consultant Zone

Car Loans – mis-selling exposed?

Since the passing of the deadline for the submission of PPI mis-selling claims, the popular media and trade press have been awash with suggested areas that Claims Management Companies [CMCs] will move into next.  Whatever you think about CMCs, it seems that the financial services industry can quite easily provide them with plenty of opportunities to explore financial mis-selling.

Recent press articles have suggested the loan industry is very capable of scoring enough own goals to save CMCs hunting time, allowing them to build momentum again.

The product attracting the media’s attention now is car loans and in particular Personal Contract Purchases [PCPs].  Common suggestions include claims that PCP salespeople, are earning higher commission by charging vulnerable customers higher interest rates.  That has now been backed up by the FCA in its recently released Consultation Paper CP19/28 which proposes banning such arrangements.

There are also suggestions that salespeople are encouraging people that have the cash available to purchase vehicles not to do so, in favour of using PCPs.  No wonder that politicians, regulators and legislators are drawing parallels to the financial services industry pre the financial crash.

It must be said though that financial service firms are in a different place to their pre-crash forefathers.  Although it has taken robust intervention by regulators to drive change, at least change has happened.  Within the sector, we have seen the implementation of an enhanced Senior Manager and Certification Regime, a refocus on remuneration schemes to eliminate product bias, better and more transparent consumer documentation and a strong push towards identification and treatment of vulnerable customers.

As a result, the sector can point to better consumer outcomes today compared to the early noughties.  That is not to say that further improvements aren’t needed, but the car loan industry can learn a lot from the experiences of other finance providers.

One area where the FCA is concerned that motor finance may not be compliant is around affordability assessments.  This again is an area where significant improvement has been made in other forms of consumer lending.  Although they have partly been driven by the prudential requirements of the PRA and partly by the conduct requirements of the FCA, the more robust affordability assessments of today are resulting in better consumer outcomes.

Our team of experts come from a diverse range of lending backgrounds, having carried out underwriting and affordability assessments in a broad spread of different lending companies.  Give us a call to see how we can add value to your loan decisioning oversight.