Monday 10 December 2018

Watchdog wants regulation of firms offering PCP car finance

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

Charlie Weston

A state watchdog has recommended more regulation for firms that provide personal contract plans (PCP) for car finance.

PCPs are a form of hire ­purchase and are now used by one-third of people buying new cars.

However, this form of finance is not regulated by the Central Bank.

The Competition and Consumer Protection Commission (CCPC) has called for changes in the law and says that most people do not understand how PCPs work.

The consumer watchdog said PCP contracts are complex and not readily understood.

The key element is that a large proportion of the cost of the car is deferred to the end.

This form of financing was introduced by car manufacturers during the bank-induced economic crisis as lending was constrained. More than €800m in PCP finance was extended to drivers in 2016, according to a new CCPC report.

This was up 65pc from the previous year.

PCP deals are now used to fund around a third of new car purchases, and are now a ­popular way to buy a ­second-hand car.

Average contracts are around €25,000, according to the report.

People selling PCPs are not required to check if the consumer can afford the deal, unlike a loan.

Most drivers have a ­positive experience of this form of ­finance, which keeps monthly repayments low by pushing much of the cost to the end of the contract.

This is because the financing is structured so the monthly repayments are largely covering the depreciation costs over the contract's term.

But the chairperson of the CCPC, Isolde Goggin, said there was a major doubt about whether consumers fully understand how the contracts work.

With a PCP the consumer pays a deposit of between 10pc and 30pc of the value of the car. There is a monthly repayment. There is also a balloon payment based on an agreed second-hand value at the end of the contract, often referred to as the guaranteed minimum future value.

The CCPC said that it would review the information it gives consumers on PCPs in light of the findings of the report.

Irish Independent

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