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'Do people know what they're signing up to?': Consumer watchdog to examine car loan offers

Personal Contract Plans, or PCPs, are becoming a popular option for those seeking car-financing loans.

Image: Number1411 via Shutterstock

IRELAND’S CONSUMER WATCHDOG is to look at whether consumers understand fully what’s involved with a car financing loan called a Personal Contract Plan, or a PCP.

A PCP involves paying between 10-30% of the value of the car at the start of the contract; then paying monthly installments, usually lasting between 3-5 years at a low-rate; and finally paying a lump sum at the end of the contract if you wish to buy the car.

The deal is especially useful for those who don’t want to own a car, and can skip the final purchasing step and jump to another PCP loan, effectively renting a car instead of owning one.

The launch of the investigation comes as the deal is becoming increasingly popular in Ireland because of the low-monthly repayments.

A spokesperson for the Competition and Consumer Protection Commission (CCPC) Fergal O’Leary told Morning Ireland it’s ”probably the only way that new cars are being financed”.

O’Leary, who oversees the Consumer Enforcement division of the CCPC, said:

When you get into the amount of money that’s involved, your €30,000 €40,000 €50,000 – there is a lot of exposure for consumers in this market.

He added that the investigation would look at whether consumers understand the deal on offer, what are the experiences of customers, and the terms and conditions contained in contracts.

CCPC - PCP The pros and cons of a PCP loan. Source: CCPC

O’Leary added that although there had only been a small number of complaints about PCP loans, what’s causing concern is “they’re asking fairly fundamental questions about products”.

He said that questions like, ‘Who owns the car?’ and ‘How many contracts do I have?’ were asked, which were “very fundamental questions that people should understand before they take out these finances”.

They are complex products, and I think what we need to find out is: do consumers understand fully what they’re signing up to when they agree to buy one of these products, and have consumers had problems?

With a PCP, you have one contract with the garage, and another contract with the credit union or bank that the PCP loan was taken out.

At the end of the contract, the minimum final payment to own the car – or the Guaranteed Minimum Future Value (GMFV) – will have been decided at the beginning of the contract. It takes account of the type of car you are buying; the length of the contract; the condition of the car at the end of the contract; and your annual mileage.

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With a PCP loan, you don’t own the car until the last payment (GMFV) is made.

Fianna Fáil Spokesperson on Finance, Michael McGrath welcomed the investigation today, but also outlined some of his concerns around the lack of regulation and authorities’ responses thus far.

He said that the CCPC made the government and the Central Bank aware of their concerns previously, but that no action was taken. He also expressed concern that no data had been collected by authorities on the number of PCP loans in Ireland.

“As of now nobody in the CCPC, Central Bank or Department of Finance knows how many PCPs exist and crucially how many customers are defaulting,” he said. “It is in the best interest of all concerned that these issues are addressed.”

It will take three or four months for the CCPC to produce an initial study, and depending on what the problems people have had with PCP loans, new regulations could be put in place by the Commission.

You can learn more about PCP loans here.

Read: Motor insurance offices raided by the consumer watchdog in relation to alleged price-fixing

Read: A Meath man has been given a suspended sentence for taking part in a ‘carpet cartel’

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