The Competition and Consumer Protection Commission (CCPC) has launched a study into the public’s understanding of the popular Personal Contract Plan (PCP) car finance products.
PCP, which is a form of hire purchase, is estimated to account for one in three new car sales in Ireland.
The CCPC’s study will examine the experiences of PCP consumers and assess the information provided to them at the point-of-sale. It will also analyse consumers’ understanding of PCPs, including the structure of the product and the options available to them at the end of the agreement.
The findings of the study will also determine the suitability of the current consumer protection regime and help inform any future policy decisions. In Ireland, PCPs are not licensed as a specific product, but come under general financial conduct rules.
PCPs defray a significant portion of the cost of buying a new car by using the vehicle’s expected resale value at the end of the contract – normally lasting three to five years – to reduce the amount borrowed. This valuation, known as the Guaranteed Minimum Future Value (GMFV), is agreed at the start of the deal.
Mileage limits
In return buyers commit to various conditions, including limits on mileage and requirements to have the car serviced by authorised dealers for the duration of the contract.
Borrowers pay an initial deposit of between 12 and 30 per cent, often covered by the trade-in value of their current car. They then pay monthly contributions covering the difference – and interest charges – between the deposit and the GMFV.
Ideally the car will be worth more than the GMFV when the contract ends and this difference can represent a deposit for the consumer’s next car. The worry is that this sum could be reduced if there is a sudden fall in used car prices when the contract is coming to an end. The larger the initial deposit made, the more the buyer stands to lose in such a situation.
Increasingly popular
According to Isolde Goggin, CCPC chairwoman: "From our interactions with consumers, we know that PCP is an increasingly popular way for consumers to finance the purchase of a car. However, these products are relatively new and, considering their complexity, there is potential for consumer misunderstanding and detriment if they take out a product that may not be suitable for them."
She said the agency’s findings can be used by policymakers to assess the suitability, or otherwise, of the current consumer protection regime.
“We would like to hear from those who have a PCP agreement, particularly anyone who either experienced problems in understanding the product before buying or had difficulties after they signed up to the contract. You can contact us through our website ccpc.ie.”
