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The Competition and Consumer Protection Commission (CCPC) has just issued its report into the use of PCP (personal contract purchase) car finance in Ireland, and it's recommending that car dealers take more care to ensure that buyers can properly afford their repayments.
The CCPC report comes as around one-third of all Irish new car purchases are made using PCP finance. The Commission acknowledges both that consumers are reporting good things about their experience of PCP, and that defaults and arrears are low, but warns that it has concerns over people's knowledge of the deal they're getting into, and the scrutiny being brought to bear on their financial status.
Speaking today, Isolde Goggin, Chairperson of the Competition and Consumer Protection Commission said: "The purchase of a car is a very significant financial commitment for any consumer. PCPs were introduced into Ireland by some car manufacturers during the financial crisis to facilitate the purchase of new cars. In recent years this type of car finance has become increasingly popular with consumers and traders. In addition to the first assessment of the size of the PCP market, our report highlights how complex these products are. In this context we also undertook a detailed assessment of the current protections available to consumers."
The Commission reports that in 2016, €805 million was advanced to Irish car buyers under PCP plans, at an average amount of €25,000 per deal. An increasing number of PCP plans are also being made to purchase second hand cars, raising further worries over how the market is setting its predicted second hand values, which are used to underpin PCP finance. The worry is that if second hand values take a beating, both consumers and dealers will suffer.
Indeed, according to the research, a large proportion of those taking out PCPs assume that the value of their car will automatically cover any outstanding loan amount and that they'll have equity left to play with, which is not always the case.
Speaking about the CCPC's report, Isolde Goggin said: "Our research shows that to date, PCPs have worked well for the vast majority of traders and their customers. This is very positive, but we must understand why this has been the case. It is the CCPC's view that the incentives for both consumers and traders have been the same; there is an ongoing relationship which encourages traders to help consumers purchase a new car and have some equity left at the end of the agreement which they can use towards another new car. This however may not continue into the future, for example if second-hand car values decline significantly. Aligned incentives are not a substitute for a regulatory regime which ensures that consumers are protected in the long term. In the context of the size of the market and the complexity of the products the current consumer protections mean that there is potential for significant consumer detriment to occur in future.
"The CCPC is of the view that further protections are required in this market. Furthermore we believe that, before significant issues emerge, policymakers should consider the market and assess what actions could help safeguard consumers into the future. The CCPC has made a number of recommendations for policymakers to consider in this regard."
For now, the CCPC is recommending that it itself should put out more consumer information to car buyers on PCP, and that there should be an extensive data-gathering exercise to properly understand how the market works.
Beyond that, though, the CCPC says that it wants to see PCPs brought under the scrutiny of both the Consumer Credit Act, and the Central Bank's code of conduct. Most importantly, it recommends that "the credit intermediary [that's the dealer] can demonstrate that it has conducted standardised affordability checks, communicated information clearly and provided a standard information sheet."