‘Glaring hole’ in PCP car finance protection

By Pádraig Hoare

A public awareness campaign on the €1.5bn personal contract payments (PCP) industry by the consumer watchdog simply masks the “glaring hole” of the lack of consumer protection when it comes to car finance.

That is according to Fianna Fáil finance spokesman Michael McGrath, who was speaking after the Competition and Consumer Protection Commission (CCPC) announced it is launching an information campaign on the car financing option, which has confused customers as to their obligations.

Michael McGrath

A third of new car sales are now financed by PCP, according to a Central Bank report.

At the end of 2017, there were 126,249 PCP agreements worth €1.5bn, up from around 14,000 six years ago.

PCP is a form of hire purchase where the consumer typically pays a deposit of up to 30% and makes regular monthly payments, usually for three years, before being presented with options such as handing the car back to the dealer, paying off a last, so-called balloon payment to own the car outright, or paying a new deposit and beginning another contract.

Although popular in Europe and the US, concerns have been expressed by consumer advocates that motorists may not fully understand the agreement to which they sign up.

Central Bank economists said there is an average of 35,000 PCPs every year, compared to 6,000 in 2012, while the average value of contracts rose from around €15,000 to over €23,000.

Mr McGrath said while an information campaign is welcome, it fails to address the “glaring hole” that PCP customers are not included in the Central Bank’s consumer protection code.

Both the CCPC and the Central Bank have insisted the responsibility to regulate PCP agreements lies with the other.

Mr McGrath said it is vital that sellers of PCP agreements be compelled to assess the financial suitability of would-be buyers, which is not currently the case.

An awareness campaign is welcome, but it has to be in parallel with key recommendations by the CCPC that PCPs are brought under the Consumer Protection Code, and that the suitability of customers is assessed thoroughly. It is a glaring hole, an anomaly that needs fixing urgently.

A Central Bank report earlier this year warned banks could be exposed to the €1.5bn PCP car market if prices in the second-hand market were to dive further.

Bank of Ireland has been the biggest provider of finance for PCPs, with major brands such as Ford, Toyota, Opel, Hyundai, and Kia all using the bank.

The Central Bank report suggested negative equity may be of particular concern in the market, given the post-Brexit fall in the value of sterling which has seen an increase in cheaper used-car imports — potentially reducing the prices of used cars in the future and pushing existing PCPs towards negative equity.

The banking system’s exposure to the car finance market in general, should a shock to the second-hand car market occur, needs further study, according to the authors of the Central Bank report.

The CCPC information campaign will run until June 17.

CCPC member Fergal O’Leary said the “complexity” of PCPs and their values mean it is “extremely important” that consumers understand what they are agreeing to when they sign up.

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