Britain’s £40 billion car finance industry may be heading towards a mis-selling scandal amid concerns lenders are rushing buyers into deals they may not be able to pay back.
The Financial Conduct Authority (FCA) announced it will begin investigating “irresponsible” lenders after revealing it was “concerned” about a lack of transparency in the market. The watchdog said some buyers, particularly poorer customers, may be paying too much for their car finance and there are also concerns about the so called 'sub-prime' finance market where car buyers with bad credit ratings are given car loans without the proper checks. Lenders found to have mis-sold finance could face millions in penalties.
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Consumer credit finance has surged over recent years, with the boom in PCP finance deals in part fueling UK car sales growth. Finance now accounts for the highest share of that growth with around 86 per cent of new cars now bought on finance.
Experts predict that a financial slump could leave thousands of drivers unable to pay their vehicle loans. Auto Express previously highlighted the issue back in August 2015, with experts at the time calling for the FCA to better investigate the market.
Andrew Smith, a director at Compliancy Services, told The Times: “The culture of the business has to change and from the evidence I have seen there are some things going wrong.
“The majority of customers have no idea who their financing contract is with, even though the rules state the buyer has to know who they are dealing with, along with everyone else involved in the chain.”
The FCA said: “We are concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry.
“We will conduct an explanatory piece of work to identify those who use these products and assess the sales process, whether the products cause harm and due diligence that firms undertake before providing motor finance.”
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