Car finance crackdown should make clear distinction from leasing, says Fleet Alliance Group
Greater education on the different types of car funding options is needed to ensure leasing is not caught up in ‘media scaremongering’ on car finance commissions.
So says Fleet Alliance Group as the Financial Conduct Authority (FCA) consults on changes to car finance commission to ensure that buyers are not overcharged on car finance commission and that they receive more relevant information.
The new rules, which will come into play next year, will help target unfair practices on car finance broker commissions – where the amount paid is linked to the interest charged on the loan. Research by the watchdog has found that “some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves”.
According to Fleet Alliance Group, the FCA work should help clear up some of the confusion that exists in the marketplace.
But the vehicle leasing and fleet management company says the FCA needs to ensure clarity of communication to prevent media scaremongering, with managing director Martin Brown saying some industry commentators and the national media have seen car finance brokers, motor dealers and car leasing brokers as interchangeable entities.
Brown explained: “I think we need greater differentiation between car finance brokers offering car deals based on Personal Contract Purchase (PCP) plans or other forms of car finance, and car leasing brokers offering rental hire, such as Personal Contract Hire (PCH), which this regulation is not aimed at.”
For example, a PCP is a conditional sale agreement and involves a deposit followed by equal monthly payments similar to a personal loan. Leasing, on the other hand, is a long term rental hire agreement without the option to own.
And Brown adds that the industry has a duty to educate the public on the different providers and products in the market.
“It’s important that the car buyer, be that an opt-out driver from a company car scheme, a fleet manager or a private buyer, understands the propositions being offered and the different routes to driving a new vehicle,” he continued.
“They are very different forms of vehicle acquisition and should not be confused.
“There are many car finance brokers at dealerships offering a very good service, and PCP in itself is a useful car buying product in the right circumstances.
“But leasing brokers can only sell in a highly regulated way which includes assessing credit-worthiness and affordability before customers are presented to underwriting. Car leasing remains a highly consultative process, but at its heart it’s a product that is simple for the consumer to comprehend and is very straightforward.
“Greater clarification and understanding of the relative merits of both forms of funding would be highly welcome when the FCA reports in January,” he added.