Following on from my blog a couple of weeks ago regarding PCP agreements, there has been quite a bit more noise regarding the ongoing FCA investigation into motor trade finance. Today there has been an article asking whether motor trade finance will be the next finance scandal? The investigation is going to be looking at how the products were sold and whether these were mis-sold much like payment protection a few years ago.
There has already been an investigation into used car dealers with The Daily Mail teaming up with Confused.com regarding the interest rates offered in used cars. This has led to the FCA commencing their current investigation and highlighted just how expensive some car finance can be. This is compared to finance from high street lenders, with average used car finance interest rates at 9.4% with some above the 30% mark. Is this irresponsible and does this remind us of the situation back in 2008 with sub-prime finance being made available to those that cannot afford it.
This issue of affordability is one that needs to be carefully looked at by the FCA when they conduct their investigations. The housing crash in 2008 which led to the recession was all to do with affordability of mortgages. The second biggest finance that most people have is their car. Surely as an industry we need to be making sure that we do not follow the same mistakes that the housing market did. We need to ensure that customers are able to pay for the cars that they are financing. Of course there is a responsibility for customers to ensure that they can adequately pay for their cars but the main responsibility must be on the lenders and car finance companies to conduct a thorough affordability check to make sure that the cars they are selling can be paid for.
The last thing the industry needs is a lending scandal with hundreds and thousands of cars being repossessed through them not being paid for. This would have a massive impact on the used car market with dealerships having all these cars back to sell. This would impact on both new and used car sales as well as confidence in the car market dropping.
With many FCA changes made over recent years regarding the sale of finance, hopefully they will find that the majority of companies are undertaking suitable affordability checks and that there is not a systemic problem in the industry that will lead to a mirror image of the housing crash.