Thousands of British drivers may have been mis-sold loans to purchase their vehicles, causing them to pay inflated prices for their cars.
The UK’s Car Finance industry is worth £40 billion and may well be heading towards a ‘mis-selling’ scandal if it’s ruled that drivers have not been made fully aware of the terms, reports have suggested.
Should the economy take a downturn, it’s feared that thousands of customers would be left unable to pay for their cars, leaving dealers with a mountain of second hand cars that would prove extremely difficult to shift.
Nearly 90% of new cars are sold through various car Finance schemes, called personal contract plans or PCPs. This means customers pay a monthly ‘rent’ to effectively lease their vehicles, instead of purchasing them outright.
If it’s found that the loans have been mis-sold, customers could be in line for millions of pounds worth of compensation.
With regards to finance, the vehicle market is second only to the house mortgage market. In 2014, the FCA (Financial Conduct Authority) estimated the total amount of lending hit £41 billion.
Leasing their vehicle is a popular option for drivers who cannot afford to purchase their vehicles outright.
A personal contract plan allows a buyer to spread the cost of their car over a period of time (usually two to four years) – instead of buying it outright.
The regulator is expected to reveal its findings into the controversy early in 2018.
This could mean tougher fines and rules imposed on lenders who have sold car loans incorrectly.
The probe follows a report by the Bank of England’s financial policy committee last month which highlighted the risks from the rapid growth in consumer credit, including the car financing industry.
Andrew Smith, a director at Compliancy Services, which advises dealers on financial regulations, told the Times: “The culture of the business has to change and from the evidence I have seen there are some things going wrong.
“The majority of customers have no idea who their financing contract is with, even though the rules state the buyer has to know who they are dealing with, along with everyone else involved in the chain.”
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