PCP lending falls 15% in first half of the year

By Pádraig Hoare

The amount of personal contract plans (PCP) for car loans in the Republic is considerably less than previously thought, according to the Central Bank — lending in the field fell 15% in the first half of the year.

Data from the financial watchdog showed there was €347m of new lending in PCPs in the first six months of 2018, 15% lower than the same period last year.

At the end of 2017, Irish households owned 76,582 contracts related to PCP finance, equivalent to €1.4bn, said the Central Bank.

This figure was significantly reduced from earlier this year, when calculations suggested there were 126,249 PCPs.

The reduction of almost 50,000 comes after it emerged some car firms overestimated the number of PCPs by including expired agreements when reporting to the Central Bank.

It means outstanding contracts increased from just over 500 in 2012 to over 76,000 five years later. On average, 30,000 PCPs are now taken out every year, compared to 400 in 2012, Central Bank research shows.

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.

They are then 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.

A report last month found the majority of motorists on PCPs do not understand how they work and could be left with nothing to show for it at the end of their agreement.

The Competition and Consumer Protection Commission (CCPC) said further protections are needed for customers in the growing PCP market.

There has been criticism from political figures of both the Central Bank and the CCPC over responsibility of the protection of consumers when it comes to PCPs.

Fianna Fáil finance spokesman Michael McGrath has called it a “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.

The reduction in new lending in PCPs can in part be attributed to a slowdown in new car sales, the Central Bank says in its latest report.

Society of the Irish Motor Industry figures show total new car sales are down 4.5% for the first half of 2018 compared with the same period in 2017.

The Central Bank said that as PCP financing is used predominantly for new cars, the lower new car sales number is likely to have had an effect on PCP lending amounts.

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

Central Bank researchers have 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.

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