Controlling Risk in a Booming Market

The auto finance industry has been urged to go “beyond compliance” to support consumers and reflect the growing importance of the industry in the UK economy.

Richard Jones, Managing Director of Black Horse, who was recently named chairman of the Finance and Leasing Association, made the call to senior industry figures at the International Auto Finance Network conference in London recently.

Speaking to hundreds of industry leaders, he told them that the sector should expect greater scrutiny to reflect the size of the market.

He said: “We are a systemically important market to the UK consumer and we are fast becoming the biggest source of non-mortgage borrowing in the UK.

“I think we’re starting to see the regulators regulate in a way that is fit for the size of our market.  I don’t think we’re getting over-scrutinised.  I think we’re just getting more of a fit-for-purpose level of activity in our market and it won’t change. We just have to deal with it.

“So, as lenders we have to come to the party and I think we can go beyond the rules of compliance in our market.”

Jones suggested three guiding principles for the market, covering lending responsibly and safely, focusing on the customer, with transparent outcomes and providing high levels of support to dealers and customers, with a particular focus on education.

The industry has come under legislative and press scrutiny amid concerns at the level of auto finance lending and whether the amount of borrowing is sustainable, both for finance companies and consumers.

The Financial Conduct Authority (FCA) is considering whether to investigate motor finance amongst fears that consumers may be borrowing more than they can afford, while a number of press reports have raised concerns that a fall in residual values could cause serious problems for suppliers and consumers.

Diesel has been a particular area of focus as ongoing concerns are raised about its impact on air quality and health in urban areas. This is pushing down asset values and could leave lenders exposed to residual value losses.

During his presentation, Jones provided a detailed review of some of the key concerns the industry has to address, including personal contract purchase plans, which account for the vast majority of car finance deals.

 “The scrutiny in our market is only going to grow. We have to respond to it. We have to be proactive – not wait for it.”

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