Ireland’s consumer protection watchdog is to examine a controversial car financing method amid fears that it could create another credit bubble.
Most of the country’s main dealers have offered personal contract plans (PCPs) since 2013 but concerns have been raised that they fall outside the Central Bank’s consumer protection code. The legislation requires regulated providers of financial services to assess the suitability and affordability of the product they are selling to a customer but car dealers do not fall under the code.
Michael McGrath, the Fianna Fáil finance spokesman, said the gap in regulation meant that salesmen may not need to find out whether the customers could afford repayments.
The Competition and Consumer Protection Commission’s study into PCPs will cover banks, dealers, and consumers across the motoring industry. The commission will analyse consumers’ understanding of PCPs, including the structure of products and the options available to them at the end of the agreement.
Isolde Goggin, head of the commission, said that the complexity of the payment plans could lead to situations where a customer took out a product that was not suitable to them.
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“After a mortgage, the purchase of a car is likely to be the biggest financial commitment a consumer will make,” she said. “From our interactions with consumers we know that PCP is an increasingly popular way for consumers to finance the purchase of a car.
“The information gained through this study will guide our future work and form an evidence base that can be used by policymakers to assess the suitability, or otherwise, of the current consumer protection regime.”
The commission said it was aware of issues that some consumers had experienced in relation to PCPs, which included a “lack of awareness” of certain terms and conditions. It also said that questions remained around the regulatory status of the credit intermediary selling the product and the lender.
Under a PCP the buyer pays a deposit and makes monthly repayments for an agreed time, at the end of which they can return the car or buy it at a “guaranteed minimum future value” agreed at the outset with the dealer.
Alternatively, they can take out another PCP on a new car, putting the difference between the guaranteed minimum future value and the market value towards a new deposit. This assumes that the value will be higher than the guaranteed minimum value.
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Mr McGrath said last month that the laws around PCPs did not make up a robust regulatory regime.
“This means in effect that a credit intermediary selling the PCP is not required to ‘know their customer’ in terms of assessing affordability and the suitability of the product,” he said.
He also said it was “deeply worrying” that neither the commission or the Central Bank collected data on PCPs. In the first five months of the year 83,761 new cars were licensed, according to Central Statistics Office figures, but there was no data on how many were bought with PCPs.
“Nobody knows how many PCPs exist and, crucially, how many customers are defaulting,” Mr McGrath said.