Analysts have warned that a large number of drivers would not be able to make payments for their cars if an economic downturn happens. This has pushed in concerns concerning miss-selling scandals. The situation is so bad that Financial Conduct Authority or FCA has started an investigation in March. The car finance industry has come under the scanner.
The FCA and its work
It is estimated that the Financial Conduct Authority will not finish its work before 2018. The regulator, however, has warned that there will be “intervention” in case it finds any evidence of wrongdoing. It was reported by Finance & Leasing Association that its members funded 87 percent of all new car sales in 12 months until January. The numbers have become nearly double during the last 10 years from 2007 era 47.6 percent.
According to Andrew Smith of Compliancy services, the business culture must change. The evidence points to one incontrovertible truth: a few things have gone wrong. Smith is a director of his company and he advises dealers on the matter of financial regulations.
Smith said that most of his customers have scant knowledge with whom they have entered into a financing contract. This remains valid even as the rules dictate that the buyer must know who they are really dealing with. They should also have knowledge about everyone else connected with the chain. British households borrowed record amounts of money amounting to 31.6 billion pounds to purchase cars in 2016. This is a 12 percent rise compared to 2015, as per Finance and Leasing Association. To put things in perspective: about nine among 10 private vehicle purchasers now utilize lower expense leasing deals when it comes to funding their new vehicle. The personal contract plans permit motorists to pay small deposits. They then pay monthly amount for fixed period. When this period ends, they have two choices: buy it completely or give back the car. This boom is due to low interest rates. Sales of new cars went up too. Car sales have increased to 12 year highs. About 1274,564 new vehicles are being steered out of showrooms during January.
In case the Financial Conduct Authority decides that the products have miss-sold intentionally, the dealers could be liable. Compensation will be in the millions. If there is a financial crash, there could be a big number of huge second hand cars that will be extremely hard to sell.