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Finance mis-selling could create ‘perfect storm’ in 2018

Finance mis-selling will create ‘perfect storm’ in 2018 according to the boss of fleet management business who has claimed that car dealership sales staff “don’t know how PCP and PCH deals work”.

Simon Hill, managing director of Leicester-based Total Motion, has said scrutiny of the motor finance sector by the Financial Conduct Authority (FCA) will reveal widespread mis-selling of motor finance on the scale of the PPI scandal.

AM’s sister publication, Fleet News, reported how Hill believes that the investigation will result in leasing companies, dealers and brokers facing huge fines and even going out of business.

Hill said: “Serious concerns were raised some time ago about the mis-selling of PCP (Personal Contract Purchases) and PCH (Personal Contract Hire) deals to people who couldn’t afford them, but we’ve now gone beyond giving dealers a slap on the wrist and telling them to clean up their act.

“This scandal is set to be as big as PPI, with dealers, lenders and brokers having to shell out hundreds of millions of pounds in fines.

“There will be companies who have mi-sold finance on literally hundreds of cars and who won’t be able to afford the huge fines. It’s also a big headache for the banks who are still recovering from paying out billions of pounds in PPI compensation.”

UK consumers borrowed nearly £32 billion during 2016 alone to pay for their new or pre-owned cars, with car loans now the fastest growing area of the consumer finance market.

Despite Bank of England tests of the sector’s resilience which saw all major banks prove their ability to overcome an extreme slump in vehicles’ residual values, and assertions from the FCA that the sector was more resilient than first thought, the FCA is scrutinising the industry’s sales practices and procedures and will publish an update on its findings in the first quarter of 2018.

Andrew Smith, consumer credit director at FCA compliance consultancy Compliancy Services, told delegates at Automotive Management Live that the likelihood of a mis-selling scandal in motor finance was unlikely as a result of the investigation.

He said: “The FCA recently said that they don’t see the risk as being as high in motor finance as they originally perceived. That goes on to support what I presently believe, that the press really are clutching at straws to get a story. Largely the reports are inaccurate, the terminology is wrong and the figures just don’t stack up.”

But Hill asserted that car dealers could be exposed to the fall-out from their findings. He said: “Recent media investigations have shown that many salespeople don’t know how PCP and PCH deals work, and have let people who are on low incomes drive away in cars valued at £12,000 upwards for around £200 a month.

“The industry needs tightening up to protect consumers who just want a shiny new car and are being encouraged by dealers and leasing companies to fill their boots even though they can’t service the debt.

“We don’t want to be in the same situation as the US, where the mis-selling of car finance products on a catastrophic scale has led to a massive growth of the ‘repo man’ sector.”



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