The Government is committed to reforming the 1974 Consumer Credit Act, which includes car finance regulations for hire purchases and PCP agreements, in a move which will see the Financial Conduct Authority (FCA) regulate consumer credit to cut costs for businesses and simplify rules for customers. In early May, the Bank of England raised the base rate to 1%, the highest level in 13 years, in a trend that will increase consumer borrowing costs.
Commenting on plans to reform the Consumer Credit Act yesterday (June 16) Economic Secretary to the Treasury John Glen said: “The Consumer Credit Act has been in place for almost 50 years – and it needs to be reformed to keep pace with the modern world.
“We want to create a regulatory regime that fosters innovation but also maintains high levels of consumer protection.”
Robinson said: “NFDA welcomes Government’s commitment to modernise consumer credit laws, which will make motor finance more accessible for consumers”, said Sue Robinson, Chief Executive of the National Franchised Dealers Association (NFDA), which represents franchised car and commercial vehicle dealers in the UK.
“We are pleased to see the outdated legislation is now up for renewal. Consumer credit has evolved a great deal since the rise of PCP and electric vehicles, and reformed legislation needs to accompany this.
“We expect a consultation to arise from this in due course and NFDA will respond with retailers’ best interests”.
According to MotoNovo Finance managing director Karl Werner, rising interest rates and cost-of-living pressures will drive up default levels in consumer credit. However, because of the ‘secure nature’ of HP and PCP lending, dealer finance remains active during previous times of economic stress.
“Recent interest rate rises, designed to address inflation, impact all lending. According to recent Bank of England data, personal loan rates rose 60 basis points in April alone, ahead of the latest base rate increase. The Bank has also reported that defaults on unsecured lending are expected to increase in Q2. Such an outcome is likely to see a more prudent approach to unsecured lending.”
But Werner added: “PCP and HP finance are highly appropriate vehicle financing options. The inherent secure nature of the products delivers high acceptance levels and competitive interest rates.