Consumer protection watchdog to study car finance plans

The consumer protection watchdog will study the use by car dealers of so-called personal contract plans (PCPs) — a type of finance that involve a balloon payment and are linked to future depreciation values — because consumers may not be fully aware of the complexity of the loans.

In the UK, where PCPs have exploded in recent years, concerns have been raised about their complexity, the high level of commission earned by car dealers selling PCPs, and whether they are helping fuel a consumer credit boom.

The finance is a hybrid of traditional hire purchase agreements which, though usually cheaper in terms of the monthly repayments, is linked to the depreciation and mileage of the car, and involves striking a ‘guaranteed minimum future value’.

In Ireland, the slide in the value of sterling since last summer’s Brexit vote that led to a surge in the sale of second-hand cars could be a further complicating factor in the car finance market, analysts say.

The Competition and Consumer Protection Commission here now wants to understand the rapidly growing PCP market for new and second-hand cars.

Chairperson Isolde Goggin said its study will also help regulators decide whether changes to consumer protection codes may be required.

“These products are relatively new and considering their complexity there is potential for consumer misunderstanding and detriment if they take out a product that may not be suitable for them,” she said.

The watchdog is seeking to contact car buyers and “particularly anyone who either experienced problems in understanding the product before buying or had difficulties after they signed up to the contract”.

On its website, the watchdog lists the “pros” of PCPs as low monthly repayments, a small deposit and choices at the end of repayment term.

The “cons” include terms over mileage and condition of the car, paying the guaranteed minimum future value to own the car, as well as that the guaranteed minimum value may not reflect the car’s future value, it says. Bank of Ireland — the market leader in the motor finance industry — has in the past said a PCP is “a customer friendly product”.

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