PCP car finance may need new legislation, says report

The Government should consider bringing in legislation to protect consumers who buy cars through Personal Contract Plans (PCP), a report commissioned by the Minister for Finance states.

The report by Michael Tutty, a former secretary general of the Department of Finance, says the Government should secure legal advice on whether PCPs fall under the current legislation for hire purhase agreements and if not, PCP regulation should be put into law.

PCPs work similarly to hire purchase loans in that the buyer pays a deposit, normally 10 to 30 per cent of the price of the car, then 36 monthly installments before facing a final outstanding balance at the end of the deal.

This balance is known as the Guaranteed Minimum Future Value (GMFV) and is calculated by the lender to be less than the actual value of the car so the customer has some equity in the vehicle at the end of the contract.

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The borrower can pay this off and take ownership of the car, hand back the car with no further liabilities, or use any excess value over the GMFV as credit on another PCP deal for a car.

However, there are multiple conditions on most deals relating to potential penalties for wear and tear.

Statistics from the Central Bank show outstanding bank lending for PCPs was €1.24 billion at the end of June, with the number of outstanding contracts standing at 69,668.

Assumed

The report says it is generally assumed that PCPs are covered by the legislation, including rules relating to advertising and the information required to be given in hire purchase marketing. However, Mr Tutty said there were also differences between the two products, “particularly the large balloon payment to be met if the vehicle is to be purchase at the end of the process”.

The report describes PCPs as “more complex than hire purchase, particularly with restrictions on mileage, wear and tear which incur penalties for the consumer.”

The report references concerns previoously expressed by the Competition and Consumer Protection Commission (CCPC) about the speed with which PCP transactions can be completed and whether the customer could fully digest and understand all the information in a short period.

The Tutty report says that while there does not seem to be a need to introduce a stronger regulatory regime for financial intermediaries for PCPs, such as the car dealership, the consumer information material could be strengthened to put more emphasis early on in it on the mileage and other conditions applied in PCPs.

Fianna Fáil Spokesperson on Finance, Michael McGrath said the balloon payments at the end of the contract can result in consumers getting into difficulty and alternative finance is often required to pay off the remaining balance.

“I accept the report’s observation that there appears to be no evidence of significant consumer detriment but it also recommends that the regulation on PCPs needs to be tightened up.”