Monday, April 22, 2024
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PCP PRESSURES INCREASE

The Bank of England’s Prudential Regulation Authority (PRA) has intervened directly into the personal contract purchase (PCP) vehicle market by telling lenders to address specific issues. This move is in addition to an ongoing investigation into facets of PCP by the Financial Conduct Authority. (See “On the Money” in BDN’s July issue.)

The PRA has told finance providers that, in its view, some of them are inflating guaranteed future values applicable at the end of a PCP deal to the point where they could be exposed to a significant downturn in used vehicle prices. To ameliorate this, it is requiring lenders to estimate the impact of a fall in 10% increments.

Other aspects of PCP have also come under scrutiny. The PRA wants lenders to take a more rigorous approach to credit scoring, on the basis that there is now a new generation of borrowers who have never had to cope with higher interest rates. And it says they should consider overall debt, including residential mortgages, when assessing a lending proposition.

These are not statutory regulations yet. But the PRA is requiring company boards to prove their operations are not incurring excessive risks in each area outlined.

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