FCA announcement on motor finance

31 July 2017 Download PDF

Report contents:

  1. Background
  2. Concerns and key questions relating to FCA’s current work
  3. Next steps

Today the FCA announced the key questions that underpin the ongoing work on motor finance.

Background

The FCA’s Business Plan 2017/18 highlights concerns with lack of transparency, potential conflicts of interest, and irresponsible lending in the motor finance industry.

The FCA stated its intention to “conduct an exploratory piece of work to identify who uses these products and assess the sales processes, whether the products cause harm and the due diligence that firms undertake before providing motor finance.”

Concerns and key questions relating to FCA’s current work

Based on the regulator’s work to-date, the following are believed to have the potential for consumer harm:

  • Personal Contract Purchase (PCPs). The PRA argues “a PCP agreement creates an explicit risk exposure to a vehicle’s Guaranteed Future Value (GFV) for lenders. We consider that direct consumer risk exposure may be more limited, but may be heightened where there has been an inadequate assessment of affordability and/or a lack of clarity for the consumer in their understanding of the contract.”
  • Terminology. The jargon used in the motor finance market is not universal and may be confusing. (Not least as FCA refers to GFV when previously it and the OFT insisted this was an optional final payment!)
  • Price/commission caps. Lenders may apply price/commission caps to their broker/dealer partners. For used car sales, there may be a greater risk that the finance aspect of a car purchase is used to generate a margin on the sale.

The FCA identified the following key questions, which shape the ongoing work:

  • Are firms taking the right steps to ensure that they lend responsibly, in particular by appropriately assessing whether potential customers can afford the product in question?
  • Are there conflicts of interest arising from commission arrangements between lenders and dealers, and if so are these appropriately managed to avoid harm to consumers?
  • Is the information provided to potential customers by firms sufficiently clear and transparent, so that they can understand the risks involved and make informed decisions?
  • Are firms managing the risk that asset valuations could fall and ensuring that they are adequately pricing risk?

Next steps

The FCA is to publish an update on this work in Q1 2018.

The FCA is working alongside the Bank of England and the PRA, who are considering the risks raised by the expansion of motor finance that fall within their regulatory remit.

For more information please contact:

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Agency Database

  • Financial Conduct Authority (FCA)
    Term:
    Financial Conduct Authority (FCA)
    Other Names:
    Definition:
    Responsible for consumer protection, market conduct, EU representation & prudential regulation of smaller firms.
    Area:
    Type:
    Regulator
    Country:
    UK
    URL:
    http://www.fsa.gov.uk/
  • Austrian National Bank
    Term:
    Austrian National Bank
    Other Names:
    Oesterreichische Nationalbank (ONB/OeNB)
    Definition:
    Contributes on a stability-oriented monetary policy; safeguards financial sability; provides general public and the busines community with high quality cash. The competent authority for the authorisation and supervision of payment institutions (article 20).
    Area:
    Banking
    Type:
    Regulator
    Country:
    Austria
    URL:
    http://www.oenb.at/en/
  • Bank of England (BoE)
    Term:
    Bank of England (BoE)
    Other Names:
    Definition:
    Area:
    Banking
    Type:
    Policy Maker
    Country:
    UK
    URL:
    http://www.bankofengland.co.uk/Pages/home.aspx
  • Bank of France
    Term:
    Bank of France
    Other Names:
    Banque de France
    Definition:
    Monitors and regulates the banking market. Competent authority for the authorisation and supervision of payment institutions (specifically within the Bank La comité des établissements de credit et des entreprises d'investissement and La Commission bancaire).
    Area:
    Banking
    Type:
    Regulator
    Country:
    France
    URL:
    http://www.banque-france.fr/accueil.html
  • Bank of Greece
    Term:
    Bank of Greece
    Other Names:
    Definition:
    Responsible for implementing the Eurosystem's monetary policy in Greece and safeguarding the stability of the Greek financial system.The competent authority for the authorization and supervision of payment institutions.
    Area:
    Banking
    Type:
    Regulator
    Country:
    Greece
    URL:
    http://www.bankofgreece.gr/Pages/en/default.aspx
  • Bank of Italy
    Term:
    Bank of Italy
    Other Names:
    Banca d’Italia
    Definition:
    Central bank: banking and financial supervision. The competent authority for the authorisation and supervision of payment institutions (article 20).
    Area:
    Banking
    Type:
    Regulator
    Country:
    Italy
    URL:
    http://www.bancaditalia.it/;internal&action=_setlanguage.action?LANGUAGE=en
  • Bank of Portugal
    Term:
    Bank of Portugal
    Other Names:
    Banco de Portugal
    Definition:
    Area:
    Banking
    Type:
    Regulator
    Country:
    Portugal
    URL:
    http://www.bportugal.pt/en-US/Pages/inicio.aspx
  • Bank of Spain
    Term:
    Bank of Spain
    Other Names:
    Banco de Espana
    Definition:
    Central bank. The competent authority for the supervision of payment institutions (note the competent authority for the authorization of payment institutions is the Spanish Ministry of Finance).
    Area:
    Banking
    Type:
    Regulator
    Country:
    Spain
    URL:
    http://www.bde.es/bde/en/

Future Dates

* Estimated date

  • 7 September 2017

    Deadline for responses to FCA's CP17/19: MiFID II implementation – Consultation Paper VI.

  • 7 September 2017

    The PRA's rules on whistleblowers in non-EEA UK branches (PRA policy statement PS8/17) enter into force on this date.

  • *Summer 2017

    It is expected that ESMA will publish thematic reviews regarding supervisory convergence and Capital Markets Union during this period.