PCP car loans study calls for checks

By Pádraig Hoare

Lenders should be required by the Central Bank to check if customers taking on personal contract plans (PCPs) can afford the car loans and more comprehensive research by the watchdog is needed.

Those were some of the findings of a review on PCPs ordered by Finance Minister Paschal Donohoe into a market worth €1.4bn in 2017, which involved more than 76,500 loan agreements.

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.

The new report was carried out by Michael Tutty, a senior Department of Finance official and member of the Irish Fiscal Advisory Council.

The report said it “did not uncover evidence of significant consumer detriment arising from the way PCPs operate at present and no other organisations have come up with such evidence”, but cautioned that increased indebtedness “might give rise to problems in the future”.

While the need for full regulation of PCP financiers is not evident at this stage, it is recommended that relevant sections of the Consumer Protection Code should be applied to PCP providers, states the report.

Fianna Fáil TD Michael McGrath said the recommendations of the report had to be implemented quickly.

“The product should only be sold to consumers if it is suitable for them and there must be a thorough affordability assessment before people are asked to sign up to what is a really significant financial commitment,” he said.