Wednesday, 16 May 2018

Ceisteanna (9)

Michael McGrath

Ceist:

9. Deputy Michael McGrath asked the Minister for Finance his views on the contention by the Competition and Consumer Protection Commission that personal contract plans, PCPs, should be covered by the Central Bank’s consumer protection code; and if he will make a statement on the matter. [21453/18]

Amharc ar fhreagra

Oral answers (8 contributions) (Ceist ar Finance)

This question relates to personal contract plans, PCPs. They are playing an increasingly important role in the car finance market. The Competition and Consumer Protection Commission published a report into PCPs two months ago. My main question relates to one of the recommendations on the application of the consumer protection code and who is going to take responsibility for that being done. The Minister might clarify if the Government accepts that recommendation and if it is going to move to implement the application of that code to these products.

Personal contract plans, PCPs, are a type of hire-purchase financing agreement used for the purchase of motor vehicles. They normally comprise three parts: an up-front deposit payment, ongoing monthly payments and a final payment at the end of the contract term. While the consumer will have the hire and use of the car, ownership of it remains with the finance provider. Hire-purchase providers are not required to seek authorisation from the Central Bank for the provision of hire-purchase agreements such as PCPs. The consumer protection code of 2012 is a binding statutory code on entities regulated by the Central Bank. As the category of hire-purchase provider is not authorised or regulated by the bank, however, the Central Bank advises that they are not subject, for the provision of a hire-purchase agreement, to the requirements of the code. There is, however, legislation governing the operation of hire-purchase agreements, and this is provided for in the Consumer Credit Act. Any entity providing hire-purchase agreements, or acting as intermediary in regard to such agreements, will have to comply with the relevant provisions of that Act. Both the Central Bank and the Competition and Consumer Protection Commission have certain functions under that Act. The bank has an overall role in relation to the operation of such agreements and the commission has a role in regard to the authorisation of credit intermediaries.

Nevertheless, it is important to keep this new and growing area of consumer finance under review. I welcome the publication of the recent report and the separate Central Bank economic letter on the market. These papers provide an important insight into the market. There are already important legislative provisions in place. Nonetheless, I am now examining the recent publications and will give careful consideration to what further actions, including consumer protection measures, would be appropriate in the light of the reports.

The issue is that there are gaps in regulation, the key one being that the provider of finance does not have to carry out any suitability check or affordability assessment of the product for the consumer. That is the key omission, and it needs to be dealt with. There are examples of where the product is exploited. If one looks this up online, one will see advertisements stating "Leave bad credit behind today" or "Drive away in your new car now." That is an example of the consequence of these products not being properly regulated.

We are talking about a product that has amassed a total debt of approximately €1.5 billion across over 126,000 transactions. There is nothing inherently wrong with PCPs but proper suitability checks are required. The affordability of the product has to be determined. What we now have is a game of pass the parcel between the Department of Finance and the Department of Business, Enterprise and Innovation over who will take responsibility for the products. Somebody has to. It needs to be done quickly.

There is no pass the parcel at all taking place in regard to these matters. The figures the Deputy has referred to are correct. Let us look at the amount of new lending in this category. In 2017, it was €835 million. This increased from €96 million in 2012. Therefore, it is a really significant increase. It is a matter that I am taking seriously. As I stated, I am examining the two publications and I will soon be deciding what further measures are needed in recognition of the scale of lending.

I thank the Minister. I welcome the fact that he is actively examining this issue. That needs to be done. Keeping the matter under review is not sufficient. The Minister now has an economic letter from the Central Bank and a detailed report from the CCPC with a number of recommendations.

The reality is that this product is currently falling between two stools in some respects. Since the contract is a hire-purchase contract, it is not a matter for the Central Bank in terms of the consumer protection code. There has to be a requirement on those providing the finance to assess the suitability of the product for the consumer. There has to be an affordability assessment. That is the key ask I am making of the Minister. A debt of €1.5 billion has been built up. The product is a really important one for the motor industry, and it is a means for consumers to get a new car. We want to protect that but the best way to do so is to ensure the product is properly regulated and that the gaps that have now been identified are filled as a matter of priority.

I will take a short supplementary question from Deputy Joan Burton.

Is the Minister aware that many young people are taking up these loans to purchase what are, for them, relatively expensive cars? There are very complex regulations governing the deal and when the purchase might come into the ownership of the individual. A lot of deals can fail towards the end of the period. The fact is that the young people then could get an adverse report in terms of their credit rating, which they will carry with them for a long period. Will the Minister examine specifically the social implication? When the young people seek a mortgage later on, perhaps with their partner, they will find they have an adverse credit rating. Nothing has been done to warn them of this or to prevent it.

In my response to Deputy Michael McGrath, I referred specifically to consumer protection law as something that needs to be considered in regard to this category of finance. It is a category of finance that has grown in the way I have described. I am aware of who might be gaining access to the finance and how it is used. I have received the reports over a number of weeks and I am now considering what further action needs to be taken, what new responsibility is required and who would need to discharge it.