Changes introduced under the Consumer Credit Act
2006 increased the proportion of finance agreements likely to be
regulated.
The most substantial change of course was the
removal of the £25,000 financial protection limit in April
2008.
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This has meant the vast majority of car finance
agreements are now subject to possible voluntary termination (VT)
and the increase in the number of people doing this has
significantly impacted motor finance providers.
According to FLA statistics, industry VT losses
were almost £60 million for the 12 months to 31 March 2009,
doubling from a year ago. The number of VT cases recorded by FLA
members increased by 36 percent over the 12 months to 31 March
2009, compared to the previous year.
We realise vulnerable consumers do need to be
protected. VTs were initially enacted to assist people who were in
financial difficulty, and who needed to exit their finance
agreement. But we now recognise the need for a change in the law,
and continue to lobby the government hard for measures to mitigate
the disproportionate cost that VTs represent to our members.
RV rebound helps
financiers
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By GlobalDataA positive development for lenders is that used car
values have recovered from the significant drops in residual values
seen in 2008.
This year has, and will continue to be, a strong
year for used car sales.
Many car buyers are tightening their purse strings
and looking to lower their financial commitments during the
downturn.
FLA statistics support this trend, with the average
losses per VT case falling between the final quarter of 2008 and
the first quarter of 2009, although losses per case are still
historically high.
We have refocused our lobbying efforts with
government, given the significant increase in losses, and we have
had discussions and correspondence with the Minister of State for
Consumer Affairs, Gareth Thomas, on this issue.
One option we are pursuing is an increase to the VT
rate from 50 percent to 75 percent of the total amount of finance
repayable. We keenly await the minister’s response to this
proposal.
Economic conditions provide our ‘pro-business’
government with an opportunity to take action to help business
competitiveness. Let us hope they seize this opportunity for
change.
Paul Harrison,
head of motor finance at the Finance & Leasing
Association
