As anyone in finance or insurance is aware the industry is going into the largest change in a lifetime.
We are fully updated with what's happening but do people like yourselves in the general public domain know what it means?
Firstly lets give you some back story, the OFT is the office of fair trading which has been in charge of licencing firms to provide finance or financial advice. This was done by applying for a licence for a set fee which was renewed every 5 years. This system applied to firms not taking other peoples deposits to lend out cash for example finance companies or loan companies. Anyone acting as a third party also had to have a licence so all car dealers who provided finance had to hold a licence and also any broker.
The FCA was in charge of everything else finance wise including banks, they were also in charge of insurance activates, unlike the OFT they had more power and control over people signed up to holding a licence.
Now both these system worked fine for everyone, however they also worked fine for miss-selling, and the new type of online loan sharks we call pay day loans. The government decided it had enough of all this and decided to merge OFT and FSA, which is what they called FCA, they have also given it more powers and control. They made a new department called PRA (Prudential Regulation Authority). The PRA will just deal with banks making sure they hold enough capital its not something which concerns the car industry so I only have limited information.
Now why am I writing this article now and why is it important? Well come the 1st April 2014 the FCA and PRA will take over full control of all finance dealings in the UK.
The first thing more than likely to happen will be pay day loans, which on a personal level is about dam time. I think everyone knows payday loan companies charge people in need HUGE rates of interest and massive penalties for failing to pay. The FCA will more than likely put a cap on the APR rate charged and cap on charges.
They will then more than likely start looking at the car industry as its about time we had a shake up and clean out of the muck that trades in our industry.
GAP will be under review with some main agents automatically adding it on to finance agreements and charging huge amounts of profit on top. The FCA will more than likely force dealers to prove that customers are getting value for money on these products and the product was explained correctly before being applied without consent.
After this I suspect car finance will be looked at. As honest dealers when quoting finance figures even over the phone I fully explain acceptance is subject to credit scoring. Then I explain monthly payments and any admin fee's and cost's involved in the HP agreement. I then move onto the rate explaining the base rate and then the APR rate.
APR and Base rate is where lots of car dealers make huge profits from finance on customers by knowingly misleading them by not supplying full information. I've seen this happen at nearly every used car dealer and more shocking at main agents even on NEW cars. I've had customers not see this shock until months or years later.
Firstly base rate is always LOWER than APR. Car dealers system work by using a set base rate, the APR is calculated after the term and amount are entered. the APR will be more for 2 years than a 3 year or 4 year agreement for the same amount as the base rate remains the same. The big issue here is loan companies and credit cards all advertise APR.
The typical miss selling I see is like this.
Customer: I've been looking for loans and I know what I can lend and the rates what rate do you charge.
Dealer: We charge 8%
Customer: Ahh that's great I've been approved to get 9.1% by my bank
The problem here is the customer has more than likely been approved for 9.1% APR where the dealers is base which could be 17% APR. Now the dealer might argue that he thought the customer was meaning base. However when this happens to me I say to the customer the APR and Base rate stating both and if they give me a figure from another dealer I tell them to check if his figure is base or APR.. If this was done more often people wouldn't feel they have been mislead into a higher rate.
However its not all down to the dealers anyone signing finance paperwork should read the PCE before signing and recheck the documents on the day of signing stopping this happening.
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