Vince's Verdict ... Industry Insider Response To Car Finance Mis-Selling Scandal In The UK Press
This month our Chief Operating Officer Vince has been reading recent news articles on the topic of car finance. Headlines such as ‘Is Britain’s Car Finance Heading for a Mis-Selling Scandal?’and ‘Boom to Bust? Fears for UK Car Market Amid Finance Mis-Selling’ have the potential to create anxiety over car finance practices.
The team at Rivervale House take great pride in providing impartial, informative advice to all of our customers. As recent articles have implied otherwise, Vince wanted to set the record straight …
“The Times Editor, Sir,
I read your article ‘fears for car market amid loan mis-selling’ and was disappointed to read the implication that customers are not being qualified properly for car finance products. At Rivervale (and all the other leasing brokers I know), there are strict procedures in place to make sure the right vehicle and right financial product are offered to customers. We make sure our customers are given adequate information about the product to make an informed decision and always ensure suitability. For such a well respected newspaper to attack the industry in this way and spread fear and mistrust, in my opinion, is not acceptable, especially when the details of the financial products given are factually incorrect, causing even more confusion for drivers considering car finance.
To begin with the definition of PCP given in the article is incorrect. You refer to this product as a Personal Contract Plan. PCP actually refers to Personal Contract Purchase, which is not the same as leasing a car. With PCP the customer enters into an agreement with a finance company and commits to a monthly payment to drive a vehicle for an agreed amount of time.
The factors that determine the monthly payment are the invoice price of the vehicle, the deposit paid, the length of the contract, the annual mileage agreed to and the residual value of the vehicle at the contract end. At the end of this agreement the customer can choose to do the following:
- Buy the vehicle – at the beginning of the agreement a Guaranteed Future Value (GFV) will have been agreed upon. If the customer desires to purchase the car, then they can pay the GFV and obtain ownership of the vehicle.
- Hand the Vehicle Back – If a customer decides they do not want to own the vehicle for any reason, they can choose to simply hand the vehicle back to the finance company (subject to mileage restrictions and the vehicle being in fair wear and tear conditions).
- Negotiate with a car dealer – a customer could also choose to negotiate with a car dealer to purchase the vehicle and settle the finance. Any equity left in the vehicle can be returned to the customer or used as a down payment on their replacement vehicle.
The article confuses PCP with vehicle leasing. In a similar way as PCP, leasing a vehicle, known as Personal Contract Hire (PCH) involves entering into a contract with a finance company for an agreed period of time, based on a pre-agreed annual mileage and initial rental. However, at the end of a lease there is no option to purchase the vehicle, it must be handed back to the finance company who always remain the legal owners of the vehicle.
Consequently, a PCP is a purchase agreement, however, a PCH is a rental agreement.
So PCP and vehicle leasing are two different car finance products. The article also states PCP’s originated in the US and have only been in Britain for the last few years. This is not correct, I have personally been arranging PCP’s along with other car finance products since the mid 90's, and believe these options were available to customers prior to this also. This is not a new industry, it is well established and has strict regulations, controls and measures in place to ensure customers are protected from mis-selling.
I believe arming consumers with accurate knowledge is the best way to avoid any companies who are less than reputable and taint the image of car finance companies. Similarly, arming customers with the incorrect information can be ultimately damaging and very mis-leading!
- The first thing consumers should know is who is the FCA. The Financial Conduct Authority (FCA) regulate financial services in the UK. They currently regulate over 56,000 businesses to ensure consumers are getting a fair, honest and effective product, and treating customers fairly is at the core of the business. As an independent body, the firms the FCA regulate pay fee’s to ensure they are operating the best possible practice. The FCA are then accountable to the Treasury and Parliament. Any honest company offering car finance services will be regulated by the FCA and would be displaying this on their website.
- Secondly, spend a few moments checking reviews for the company you are considering arranging car leasing through. There are so many ways customers can get their voices heard now, whether their experience has been good or bad. Trustpilot provides reviews on nearly every company out there. Companies have no control over which reviews appear, we cannot pick, edit or delete reviews. This is a great barometer of how the company performs in thier industry, as these reviews are guaranteed to be from genuine customers who have used their services.
- Thirdly, make sure you have been questioned about product suitability and affordability before you sign any contract. All regulated car finance brokers should have a system in place to ensure you are getting the right product for your circumstances and to check you understand the contract you are entering into. At Rivervale we ask customers to fill in a questionnaire and sign it to show complete transparency over the options discussed with our Account Managers and to confirm you are able to afford the commitment. This Questionnaire asks questions such as; Do you want the option to own the vehicle? Do you require a personal or business agreement? And will display information such as Finance Provider, Monthly Rental and Contract Term. If a company is not asking you these questions and providing this information it is best to steer clear.
Points to Consider Before Entering into a Vehicle Lease
Before you sign a contract, stop and make sure you can answer the following questions and have been provided with the following information ...
- Did you require a personal or business lease?
- How many miles do you drive every year? is your contract based on this amount?
- How long would you like to keep the vehicle? Does the length of your contract reflect this?
- Would you like the option to own your vehicle? If yes, a vehicle lease may not be the right product for you
- Can you afford payments without causing undue financial hardship?
- Which product you have been recommended?
- Which finance provider is funding your car?
- What amount of monthly rental you will pay?
- Have you checked Trustpilot reviews for the company you are using?
- Is the company you are using regulated by FCA?
- Is the company you are using a BVRLA member?
- Lastly, look at who the company are affiliated with. The most established leasing companies in the UK are; Leaseplan UK Ltd, Arval UK Ltd, Lex Autolease Ltd and Alphabet GB Ltd. Affiliation with these companies will be displayed on the company's website for customers to see. These funders will also have their own processes to double check the right product has been offered at the right price, and that the customer can afford it, so there is an extra layer of protection for consumers. Check also for affiliation with the British Vehicle Rental and Leasing Association (BVRLA). The BVRLA is the trade body for the vehicle renting and leasing sector. Members will be subject to regular audits to ensure they are adhering to their codes of conduct that provide customers with transparent terms, ethical trading, clear pricing and high levels of customer service.
I do agree with the article that Personal Contract Hire has become a popular choice for many drivers. I believe there are many factors that have contributed to this. The UK has a strong economy when compared to others in the EU so when other countries make cars and are looking to export, we are an attractive option. To encourage this further, healthy discounts are offered, and this combined with the strong pound and favourable exchange rate pre-Brexit led to an influx of cars to the UK benefitting from extremely competitive leasing rentals.
These circumstances have coincided with what is now being called the ‘direct debit generation’, whereby monthly payments are the norm whether that be for a mobile phone, internet subscription or a car. Leasing also provides an easy way of budgeting for running a car with one fixed monthly amount, which can also include all routine servicing, maintenance, replacement tyres and annual road fund licence fees. This provides people with a hassle-free way of motoring with only insurance and fuel costs to consider.
In my opinion the combination of discounted cars, the desire to pay monthly and for hassle free motoring has led to a boom in leasing.
Finally, it well may be true, as the article states, that those with poor credit ratings could be being given the most expensive, sub-prime, deals. It does seem unfair to me that those who most need the best price are given the highest, however, at Rivervale we do not offer any sub-prime deals. Those with poor credit scores are seen as more of a risk to a lender, and therefore prices are inflated on a 'rate for risk' basis. Whether this is right or wrong it happens with many financial products, not just car finance.
I would be more than happy to sit with The Times newspaper or any other publication to explain the pro's and con's of the products in our industry and to make sure that they understand these products before they start to mis-lead the general public with such inaccurate information."
The comments above do not necessarily reflect Rivervale's views unless clearly stated.
10 May 2017
Written by Natalie Faughy