The Financial Conduct Authority (FCA) has set out its main areas of focus for its investigation into the motor finance industry in the UK.

In a statement released this morning, the FCA said: “We consider it essential that consumers understand the risks and particular features of the motor finance they are taking on.”

The FCA said it has established lenders may apply price and commission caps on dealer and broker partners and that new car offers are heavily supported by manufacturers.

The statement said: “For used car sales, particularly where there is no finance subsidy or deposit contribution, there may be a greater risk that the finance aspect of a car purchase is used to generate a margin on the sale.”

The FCA said that based on its current work to date, its key focus points are:

• Are firms taking the right steps to ensure that they lend responsibly, in particular by appropriately assessing whether potential customers can afford the product in question?
• Are there conflicts of interest arising from commission arrangements between lenders and dealers, and if so are these appropriately managed to avoid harm to consumers?
• Is the information provided to potential customers by firms sufficiently clear and transparent, so that they can understand the risks involved and make informed decisions?
• Are firms managing the risk that asset valuations could fall and ensuring that they are adequately pricing risk?

A statement from the FCA said: “We are taking forward a range of work to help us to answer these questions, and to decide what further interventions may be necessary.

“This includes supervisory work with FCA-authorised lenders, detailed analysis of millions of anonymised credit reference agency records, and careful scrutiny of firms’ sales practices and processes.”

The FCA said it is also working closely with the Bank of England and the Prudential Regulation Authority, who are considering the risks raised by the expansion of motor finance that fall within their regulatory remit.

Stephen Sklaroff, Finance & Leasing Association (FLA) director general, said FLA’s members work hard to ensure they lend responsibly and treat their customers fairly.

He said: "We note that the FCA has found that most firms address affordability in an appropriate way.

“We look forward to working closely with the FCA on affordability assessments in the consumer credit markets, and as it carries forward its exploratory work to develop its understanding of the motor finance markets. 

“We welcome the FCA’s focus on vulnerable customers, and we have recently published our own new guidance for the lending industry on how best to identify and support such customers.”

An update on the FCA’s motor finance review will be published in Q1 2018. The motor finance focus was part of a wider review the FCA is taking of consumer credit and it has said it is considering a ban on charges for unarranged bank overdrafts.