The release of our June statistics provides an opportunity to look back at the key trends and issues so far in the 2014 UK car finance industry.
Total new business volumes – new and used car agreements provided to both consumers and businesses – were up 11% in June to more than 202,000 agreements. The value of car finance provided by FLA members in June was £2.7bn, up 16% on June 2013.
Both the new and used car finance markets posted strong performances in the first half of the year. FLA members’ finance penetration of all consumer new car registrations has so far held steady throughout 2014 at around 75%, and annual penetration stood at 75.2% in June. Personal contract purchase remains the most prevalent form of new car finance, accounting for 71.3% of FLA member consumer finance in June, followed by hire purchase (22.5%).
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In June, the consumer used car finance market reported its best performance of Q2, with finance volumes up 22% (90,000 agreements) compared with June 2013. In the first half of 2014, FLA member consumer used car finance volumes grew by 18% to over 538,000 agreements. We estimate that FLA members fund between 25-30% of total consumer used car sales. In June, 59.1% of consumer used car finance was provided on hire purchase and 31.9% on PCPs.
The Financial Conduct Authority took on regulatory responsibility for consumer credit from 1 April, bringing both opportunities and challenges for the car finance industry. We know the FCA is a different type of regulator to what the sector has previously been used to. Principles-based regulation means that firms not only need to follow the FCA’s rules but also the ‘spirit’ of the new regulatory regime to put consumers at the heart of all their business activities. Beyond the rule book and business principles, the FCA’s regulatory toolkit includes market studies and thematic reviews. On the former, we’ve seen just how quickly the regulator wants to get to know the markets it regulates. We’ve already seen a number of ‘remedies’ for how GAP insurance should be sold to consumers as part of its market study on general insurance add-on products. The FLA is actively engaged with the FCA on this work.
The FCA’s thematic review of financial incentives (including commission paid to credit brokers and motor dealers) clearly sets out its expectation for all regulated firms to manage any risks which could result from existing incentive arrangements. Through regular FLA forums and a new suite of training courses, we’re helping FLA members to understand the FCA’s requirements and prepare their applications for authorisation. More information can be found on our website: fla.org.uk.
Elsewhere, there have been some notable successes in our work with the Ministry of Justice (MoJ) linked to how claims management companies (CMCs) are regulated. Following recent consultation, the MoJ will be tightening up the conduct rules which all authorised CMCs need to adhere to from this October, and the regulator is expected to have brand new powers by the end of the year to fine any CMCs it finds to be in serious breach of its conduct rules. Furthermore, the role of the Legal Ombudsman will be extended early next year to accept complaints from customers against CMCs – similar to how the Financial Ombudsman Service currently investigates customer complaints against finance companies. We have been lobbying for these changes for some time.
We remain very active in helping members to tackle financial crime. Despite the high volume of car finance business currently being written by FLA members, our statistics show that there were only 763 cases of consumer car finance fraud in the 12 months to June (up 6%). Our partnership with the ACPO Vehicle Crime Intelligence Service (AVCIS) continues to help lenders track down cases which get through. The police unit has, since inception in 2007, helped finance companies to recover over 2,400 vehicles worth in excess of £36m.
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By GlobalDataFinally, our Specialist Automotive Finance (SAF) project has had a successful 2014. Sytner’s participation means that all of the 10 largest dealer groups are now involved in SAF, and over 25% of all showrooms in the UK. We will shortly launch a new SAF web portal and are working with the Institute of Financial Services on a more technical SAF qualification for the industry, in addition to the existing online test.
