Tuesday 16 January 2018

Fears that complex car 'hire-purchase' deals are leaving buyers vulnerable

Chairperson of the CCPC Isolde Goggin Picture: David Conachy
Chairperson of the CCPC Isolde Goggin Picture: David Conachy
Charlie Weston

Charlie Weston

Fears that thousands of motorists are taking out finance deals without being aware of the pitfalls have prompted the State consumer protection body to launch a new study.

The Competition and Consumer Protection Commission said personal contract plans (PCPs) were now one of the most popular ways to finance the buying of a car.

But it warned that there was a huge lack of awareness about the drawbacks to these deals.

There are also concerns whether the lenders providing PCPs are regulated, and about the regulatory status of car salespeople offering the deals.

PCPs are a form of hire-purchase. They have made new cars, in particular, affordable. Many have zero interest rates with low monthly repayments.

But there is huge concern that the collapse in sterling is making it cheaper to import cars from Britain and Northern Ireland.

This has the potential to make PCPs deals less viable when the three or five-year terms of the deals end.

Imported vehicles licensed here for the first six months of the year rose by 46pc to nearly 45,000.

The consumer protection body said it was aware of issues that some consumers had experienced in relation to PCPs.

"Such issues concern a lack of awareness of certain terms and conditions, uncertainty as to what certain terms and conditions mean at the end of their agreement and questions around the regulatory status of both the credit intermediary selling the product and the lender, with whom the consumer enters into the agreement," it said.

The study will also analyse consumers' understanding of PCPs, including the structure of the product and the options available to them at the end of the agreement.

The findings of the study will determine the suitability of the current consumer protection regime and help inform any future policy decisions, the Competition and Consumer Protection Commission (CCPC) said.

Chairperson of the CCPC Isolde Goggin said that after a mortgage, the purchase of a car was likely to be the biggest financial commit- ment a consumer would make. "From our interactions with consumers we know that PCPs are an increasingly popular way for consumers to finance the purchase of a car."

However, these products are relatively new and their complexity means there is potential for misunderstanding.

"The information gained through this study will guide our future work and form an evidence base that can be used by policy-makers to assess the suitability, or otherwise, of the current consumer protection regime."

Ms Goggin said the plan was to carry out an extensive analysis of the market and engage with the industry.

Consumers were called on to make their views known to the consumer body on PCPs.

What is a PCP?

PCPs are a modern twist on the old hire-purchase agreement.

You pay a deposit, which is typically between 10pc and 30pc of the value of the new car.

You then make monthly payments, which will usually be for three years. At the outset you agree the number of kilometres you are going to clock up over the period of the agreement.

If you keep to this, the car will have a pre-agreed value at the end of the deal, known as the minimum guaranteed value, sometimes called the guaranteed minimum future value (GMFV).

At the end of the three years, you have a number of choices. You can buy the car outright for the guaranteed value agreed at the start. Alternatively, you can hand back the keys and walk away.

The option that most people take, and the one the dealer will be hoping you opt for, is to exchange the car for a new model. You finance this with a new PCP deal. The key is that the agreed minimum value at the end of the term of the deal is sufficient to cover the final payment. And, crucially, there would be enough value in the car to include an amount of "equity", which can act as a deposit on the next vehicle.

This assumes you roll over your agreement into a new one.

However, if the value of the car falls below the agreed amount at the start of the deal, then the equity will disappear. You could end up with no deposit at all for your next car.

You can walk away from the deal, but you will have nothing out of the PCP to put towards your next motor, and no car. Motor experts warn there is likely to be a glut of three-year-old cars as recent PCP deals mature.

This is likely to push values down, meaning many cars bought with PCPs will be below their guaranteed minimum future values.

Irish Independent

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