The Dangers Of Auto-Renew Car Insurance

Friday, 23. September 2016

Hi, Graham Hill here, thank you so much for visiting my blog, I hope you learn a lot and as a result end up driving a great car. In order to do so you can get all the information you need by buying my book, An Insider Guide To Car Finance or use me to finance your next car. Happy driving.

I’ve talked about this subject before but recent statistics has caused me to mention it again. It seems that nearly six million drivers are caught out by auto renewals of their insurance, losing on average almost £120 per annum. I have to say when I changed my insurer at my last renewal I saved nearly £400 per annum so I know how important it is to shop around every year.

The research was carried out by comparethemarket.com and revealed that the average saving by shopping around is £119.39, up from £106 at the start of the year. Younger motorists suffer most when auto renewing with premiums being up to 30% more than could be achieved by shopping around.

And don’t just go onto the comparison sites, don’t forget that some of the cheapest insurers such as Direct Line are not on the comparison websites. So make sure you try them as well. Although I would strongly advise against Zurich who tried every way they could to avoid paying out on a damaged laptop of mine.

The Financial Ombudsman Service told them on 3 occasions to pay out but it wasn’t till the Ombudsman made a final ruling, two and a half years later, that they were told that they were wrong not to payout. They are crooks – don’t use them! Also don’t overlook insurance brokers, they certainly come into their own in the event of an accident and dealing with the paperwork. By Graham Hill

Consumer Rights Act & Related Rights

Tuesday, 26. July 2016

I have read on many lawyer’s web sites that following the biggest change to the all inclusive Consumer Rights Act 2015, the ability to return goods that do not conform to the conditions laid down in the new Act, that consumers have confused this with the terms of the Distance Selling Act.

The new Consumer Rights Act replaces many old acts such as the Sale of Goods Act (last revision 2006) Unfair Terms In Consumer Regulations and the Supply of Goods & Services Act along with other minor acts. But not totally as I will explain in a moment.

In the new act you have 30 days, during which, if the goods are, in simple terms, Faulty, Not As Described or Unfit For Purpose you can claim a refund. You don’t have to give the seller the opportunity to repair the item and you certainly don’t need to go to court to claim your money back.

A word with your local Trading Standards Office or Citizen’s Advice Bureau should do the trick. If you choose the Court route you will probably be offered the free Small Claims Court Mediation Service once the other party has filed a defence. Well worth considering.

 

First let me deal with the confusion. You have 30 days to return goods or claim on services that do not meet the conditions of the Consumer Rights Act and claim your money back. Not to be confused with the 14 days you have under the Distance Selling Act when you buy goods or services that you haven’t been able to inspect before paying for them.

In this case you have the right to return goods to the seller within 14 days and claim your money back simply because you don’t like the colour or design of the goods whereas items returned under the Consumer Rights Act must be faulty, not as described or not fit for purpose.

But cases have been going to small claims courts citing the Consumer Rights Act when the consumer didn’t have a leg to stand on because he simply didn’t want the goods after getting them home. So don’t be confused, you can’t return goods under the Consumer Rights Act just because you changed your mind.

 

30 Day, 6 Month & 6 Year Rules: The 30 day rule is the period during which you can simply ask for your money back if the goods or service don’t conform to the Consumer Rights Act. You can allow the seller to repair or replace the goods but if you allow for a repair and it doesn’t fix the fault you still have the right to claim your money back.

And the onus is not on you to prove that the goods or service are in breach of the Consumer Rights Act it is down to the supplier to prove that they aren’t. This brings me to the 6 month rule. You must allow the supplier to remedy the fault with a repair or replacement after 30 days but within 6 months.

Again, you don’t have to prove that the fault existed when you bought the goods the supplier must prove that it didn’t. After 6 months but up to 6 years you can still exercise your rights if the Consumer Rights Act has been breached but after 6 months the onus is on you to prove that the fault existed.

 

Car Warranty: I think that it is worth mentioning at this point your legal position when it comes to a faulty car and its manufacturer’s warranty. Apologies if you have read this before as it is something that I bang on about quite regularly. Most new cars come with a transferable 3 year warranty, some more but most with 3 years.

Whenever you read a complaint in the National press, specialist motoring press or popular blogs about a car fault the warranty is considered to be the ultimate redress when things go wrong. It isn’t, it is there to add to the customers’ legal protection but just because the warranty ends on the car it doesn’t mean that the car falls off a cliff and every part on the car is expected to fail.

Outside of fair wear and tear I would expect most components on a car to last at least 8 years of average mileage provided the car has been properly serviced. The ultimate redress is not the warranty, it is legislation, in this case the Consumer Rights Act.

So when a major item such as a gearbox goes faulty after 3 years and 1 month and the manufacturer refuses to accept liability as you are now outside the warranty revert to your rights within the Consumer Rights Act and take the dealer and the manufacturer to court.

 

What is a Consumer?: The Consumer Credit Act 2006 defines an individual to include a sole trader, small partnership (3 partners or less) or an unincorporated association. As I understand it (and I have read conflicting information) the Consumer Rights Act defines a consumer as  “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”.

Not sure how you would determine how much of the use of a laptop computer is for business and how much for personal use. But I have seen suggestions that the ‘spirit’ of the CRA should also apply to SME’s so whilst they may not have the same statutory right of rejection within the first 30 days a court may use as a test of reasonableness the terms laid down in the CRA. The situation is made even more unclear by the scope of control exercised by the Financial Ombudsman Service (FOS).

The FOS deals with complaints from consumers relating to Finance and Insurance Products with consumers being defined as above by the Consumer Credit Act. Now the CCA completely ignores ‘Unincorporated Associations’, i.e. Limited Companies but if you go onto the FOS website you will see that they also offer their services to Micro Enterprises as defined by the EU, which is a business that employs less than 10 people and a turnover or balance sheet net worth of less than 2 million Euros. And of course this can apply to limited companies So where is the consistency?

 

Financial Ombudsman Service: The little understood fact is that the FOS acts outside the law. It will use the law as its basis for coming to a ruling, which is legally binding on both sides, but the Ombudsman will consider such common sense things such as ‘was the customer treated fairly?’

The FOS can make an emotional decision compared to a judge who must base his decision on the letter of the law so I always recommend that you consider the FOS before court action. And bear in mind you don’t have to accept the FOS ruling, you can still exercise your right to go to court. And whilst you may run a Micro Enterprise and your complaint would normally fall outside the CCA you can still make your complaint to the FOS and you will be listened to.

By Graham Hill

FCA Issues A Scam Warning When Taking Car Finance

Friday, 22. April 2016

The Financial Conduct Authority (FCA) has issued warnings about a number of scams that are doing the rounds perpetrated by brokers who are not authorised by the FCA.

They will be looking to take action against such companies when they are found but in the meantime the onus is on consumers to make sure they check that the person providing the finance/advice/services is properly authorised.

Especially the case when you are asked to part with money upfront as a commitment fee or a deposit to secure a car that will be financed. Their advice is ‘We strongly advise you to only deal with financial firms that are authorised by us, and check the Financial Services Register to ensure they are.’

And here’s the rub, if you give money to an unauthorised firm, you will not be covered by the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme. So as I pointed out recently the first consideration should not be the rate that you are offered, be that a lease rate or APR, but the company that offers it and will represent you going forward. You have been warned – yet again! By Graham Hill

The Desperate Need For Greater Understanding Of Car Finance

Friday, 30. October 2015

Did I mention that I won the Innovation of the Year Award at the Frontline Solutions sponsored Finance & Insurance Awards 2015? Well in case I didn’t mention it – I did! And very proud of it I am too. Earlier in the day at the conference, speakers spoke about the motor finance industry and the need for much more education, not just for those selling the finance products such as dealers, brokers, banks, building societies and others but also customers who stand no chance if the people selling the products don’t have a grasp of the way the finance functions.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

To add to the confusion salesmen, anxious to make a sale, end up emphasising benefits that often don’t exist and certainly avoid telling clients anything that may put them off. For example a bank won’t tell you that an unsecured personal loan puts you at greater risk than a secured personal loan.

If you don’t repay your £2,000 loan that is secured against your house and you end up in court it would be very extreme for the judge to throw you and your family out on the street and order the sale of your house with maybe north of £100,000 equity in it for the sake of a £2,000 debt.

On the other hand if the £2,000 was ‘unsecured’ a court order could be issued and you could end up handing over valued possessions such as your TV, computer, jewellery etc. I always say that unsecured means unsecured against nothing in particular. So whilst explaining the finance they kind of miss that bit out albeit that it may be in the small print.

Oh and it doesn’t stop there, they could still go for your house if you don’t have enough value in your possessions in order to pay the debt, known as a charging order. This will force you to pay the debt back if and when you sell your house which is basically what happens when you take out a secured loan that you cannot repay. And that is the tip of the iceberg.

Many retail car salesemen don’t understand how contract hire (better known as a lease) works. But neither do customers and even accountants often miss some of the massive advantages attached to car leasing. At the other extreme there are customers whom, having taken a car on a lease, suddenly become as expert as me! They simply tout around the market to find the cheapest deal but will it end up being the cheapest with so many opportunities to charge all sorts of ‘extras’ included in the contract?

The rates are often not fixed so between ordering the car and delivery you may find that the rates have increased by £30 per month as a result of a £1,000 increase in cost of the vehicle. There are also some ‘brokers’ who are not conforming to the new FCA rules, are not members of any trade association and possibly don’t have professional Indemnity Insurance or are just managing to survive and could be closed down before your car even gets delivered.

How will you deal with that situation? If he is shut down or goes bust what happens to the car you have on order? If the car was ordered by the broker the order will be cancelled and you could be back to square 1. See what I mean? There is more to education than just understanding the basic products.

That’s why I am in the midst of re-writing my best selling book, Car Finance – A Simple Guide and creating educational videos to make sure you understand the upsides, downsides and matters relating to vehicle finance. Watch this space for future announcements and products. By Graham Hill

New FCA Permissions Replace Consumer Credit Licences

Saturday, 7. February 2015

If you work in the finance industry you have probably been involved in debates and discussion over the last 12 months regarding some of the biggest changes to the consumer credit industry since the introduction of Hire Purchase in the 60’s. If you are a lender, broker, dealer or consumer (this includes small businesses that are small partnerships or sole traders) life will never be the same again.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

The Government passed over administration of the Consumer Credit Act from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) in April 2014. Since then confusion has reigned. I’m not going to talk about the affect on the lenders and the brokers but you need to understand the potential detrimental affect on you as a customer.

In the past when a dealer, broker, shop or anyone else had to provide advice on finance they had to hold a Consumer Credit Licence. It was a totally meaningless piece of paper, we all knew that, as long as you didn’t have a criminal record or were an undischarged bankrupt you could apply for and be granted a licence. It was simple but actually meaningless.

So when the FCA took over and changed the system from a single licence with a number of categories such as credit broking, debt collection, debt advice etc. we now have a three tier system, named Full Permission, Limited Permission and Appointed Representative. It was all beginning to look good, at last there was a body to police the consumer credit industry that might get rid of a large number of crooks and ensure that new entrants and even those already providing advice were properly qualified.

However, the opposite seems to be happening. In order to apply for permission brokers and dealers will need to spend a lot of money, not only in application costs but ongoing administration and reporting costs. This will result in some smaller used car dealers withdrawing their finance offering because the new regulations are far too complicated for them to understand.

It will also cause some brokers to withdraw for similar reasons so you as a customer will have less choice. It also means that the cost of being regulated will increase sharply so those costs will be reflected in the finance charges. On the other hand brokers who offer commercial finance to limited companies, i.e. non consumers are also being encouraged to apply for Full Permission.

I find this approach by trade bodies and lenders obnoxious. These companies with little or no experience of consumer finance will be able to provide customers any consumer product they wish from personal loans to HP and buy to let mortgages. It’s a disgrace, these brokers should never be given Full Permission but if recent history is anything to go by every applicant will be granted Full Permission with very few rejections.

Sounds like Consumer Credit Licences all over again. If you are currently considering various car finance options make sure that you are talking to someone who is properly qualified. By Graham Hill

Finance Application Successes And Failures Revealed

Wednesday, 18. June 2014

Following on from my last piece it seems that 1 in 6 applications for finance were rejected last year according to statistics revealed by OceanFinance.co.uk. It will be interesting to see how this compares to 2014 following the introduction of the new Financial Conduct Authority (FCA) rules in April of this year.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

They found that more than a third of the adult population (38.6%) applied for finance of some form or another over the last 12 months. This was an increase from 2013 when 33% applied for one or more of the popular credit products. Men are more likely to apply than women by quite a margin, 43.6% vs 34.4% over the last 12 months.

The age group most likely to apply for credit are 25 – 34 at 60.6% whilst only 17% of the over 55’s applied for credit according to the stats. The most likely decline would be if you apply for an overdraft at nearly one in five declines (18.6%). 16% of those applying for a personal loan get declined.

The good news for applicants last year, not so sure the same will apply this year, is that car finance applications were most successful with just 11% being rejected. Applications for a first mortgage was the type of  finance that lenders liked the most as they were most likely to be accepted, no doubt helped along by the Government incentives reducing the risk. 84.5% of all applications were accepted over the last 12 months.

The type of lender most likely to lend to applicants are what are known as ‘crowd lenders’ or ‘peer to peer lenders’ with an acceptance rate of 86%. It was also found that rather than operate a straight accept or decline process applicants were offered a higher rate of interest if they were felt to be higher risk, particularly when applying for credit cards.

I fear that this will all change dramatically over the coming year – for the worse! By Graham Hill

Heavy FCA Fines Make Life Difficult For Lenders

Tuesday, 17. June 2014

As the new rules imposed upon consumers and small businesses via lenders by the new Financial Conduct Authority (FCA) start to take affect there is a worrying undercurrent starting to gather momentum. Earlier this year I was in a meeting with directors of one of the biggest lenders in the car finance industry.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

I asked what they believed the effect would be of the forthcoming FCA regulations and the rules that had started to filter through. Their response was, at the time, quite dismissive. They pointed out that they had been in the motor finance industry since 1959 and by now they actually knew how to underwrite a customer.

Whilst they weren’t prepared to share actual numbers with me they explained that the amount of delinquency was minimal (that’s the amount of defaults and arrears) and it was certainly manageable so the idea of a Government body telling them what they needed to look out for when underwriting a customer was frankly – ludicrous!

The idea that you needed to carry out some strange affordability tests and have copies of umpteen bills and proofs was simply several steps too far. We all had a bit of a laugh, a cup of tea and a chocolate Hob Nob before moving onto the next item for discussion.

Fast forward a couple of months and that same company is suddenly asking for more information, copies of tax returns, 3 months bank statements and a tree’s worth of paperwork to prove the person is who they say they are. So what has happened? Fines, that’s what has happened. The lenders who are new to the rules of the FCA have been told that if they don’t tow the line they will be fined – and I mean FINED!

Last year the FSA and FCA dished out £472 million in fines, even what many would consider to be minor breaches attracted fines measured in tens of thousands of pounds. So suddenly lenders have had a wake up call and who suffers? Other than brokers like me, the customers – that’s you!

Let me give you an unbelievable example, traditionally lawyers have been extremely low risk applicants as they generally operate as partners which means that all of their personal assets are on the line when taking out finance. In a recent application, out of 5 partners 4 had houses worth over £1 million and not one had a mortgage, the fifth had a house worth £800,000 with a £200,000 mortgage on it.

The company had been trading over 20 years and neither the company nor the partners had a blemish against them. Perfect you would think. Ohhh no, we even had last 3 months bank statements available showing a balance never less than £70,000 but their year end is September so the last accounts to be completed were for September 2013, which had not been finalised so the last audited accounts available were 2012, too old for the lender, or should I say the FCA when testing for affordability.

The lender then wanted management accounts, which the company doesn’t run. As the senior partner pointed out, they make obscene amounts of money, as explained by their accountants once a quarter, so why would they need to know how much they spent on paper clips or stamps? So no accounts dated within the last 12 months and no management accounts – customer declined.

After appeal we managed an acceptance but with a much larger initial rental to which the customer said no – or words to that effect. The times are certainly changing and in my opinion – not for the better. But the real reason for writing this piece is to warn you if you are due to arrange finance for a new car.

First of all forget the fact that you have had finance before, many funders now ignore that totally, you will be treated as a brand new customer. Make sure that you prepare for finance as I explain in my book, Car Finance – A Simple Guide (available on Amazon), make sure that your last 3 months bank statements are looking good and if they don’t, wait till they do and make sure there are no returned (bounced cheques/direct debits) items on the statements, that would be a straight decline.

Get a copy of your credit report and see what it says, make sure there are no mistakes on there, it is simple enough and that extra bit of preparation could be the difference between getting a car or not. Oh and use a proper broker that can make sure that he can help you along the process, you often only have one shot at finance so don’t let a bucket shop blow it for you. By Graham Hill

The Fear Of Heavy Fines Is Causing Lenders To Be Over Cautious

Tuesday, 27. May 2014

As the new rules imposed upon consumers and small businesses via lenders by the new Financial Conduct Authority (FCA) start to take affect there is a worrying undercurrent starting to gather momentum. Earlier this year I was in a meeting with directors of one of the biggest lenders in the car finance industry.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

I asked what they believed the effect would be of the forthcoming FCA regulations and the rules that had started to filter through. Their response was, at the time, quite dismissive. They pointed out that they had been in the motor finance industry since 1959 and by now they actually knew how to underwrite a customer.

Whilst they weren’t prepared to share actual numbers with me they explained that the amount of delinquency was minimal (that’s the amount of defaults and arrears) and it was certainly manageable so the idea of a Government body telling them what they needed to look out for when underwriting a customer was frankly – ludicrous!

The idea that you needed to carry out some strange affordability tests and have copies of umpteen bills and proofs was simply several steps too far. We all had a bit of a laugh, a cup of tea and a chocolate Hob Nob before moving onto the next item for discussion.

Fast forward a couple of months and that same company is suddenly asking for more information, copies of tax returns, 3 months bank statements and a tree’s worth of paperwork to prove the person is who they say they are. So what has happened? Fines, that’s what has happened.

The lenders who are new to the rules of the FCA have been told that if they don’t tow the line they will be fined – and I mean FINED! Last year the FSA and FCA dished out £472 million in fines, even what many would consider to be minor breaches attracted fines measured in tens of thousands of pounds. So suddenly lenders have had a wake up call and who suffers?

Other than brokers like me, the customers – that’s you! Let me give you an unbelievable example, traditionally lawyers have been extremely low risk applicants as they generally operate as partners which means that all of their personal assets are on the line when taking out finance.

In a recent application, out of 5 partners 4 had houses worth over £1 million and not one had a mortgage, the fifth had a house worth £800,000 with a £200,000 mortgage on it. The company had been trading over 20 years and neither the company nor the partners had a blemish against them.

Perfect you would think. Ohhh no, we even had last 3 months bank statements available showing a balance never less than £70,000 but their year end is September so the last accounts to be completed were for September 2013, which had not been finalised so the last audited accounts available were 2012, too old for the lender, or should I say the FCA when testing for affordability.

The lender then wanted management accounts, which the company doesn’t run. As the senior partner pointed out, they make obscene amounts of money, as explained by their accountants once a quarter, so why would they need to know how much they spent on paper clips or stamps? So no accounts dated within the last 12 months and no management accounts – customer declined.

After appeal we managed an acceptance but with a much larger initial rental to which the customer said no – or words to that effect. The times are certainly changing and in my opinion – not for the better. But the real reason for writing this piece is to warn you if you are due to arrange finance for a new car.

First of all forget the fact that you have had finance before, many funders now ignore that totally, you will be treated as a brand new customer. Make sure that you prepare for finance as I explain in my book, Car Finance – A Simple Guide (available on Amazon), make sure that your last 3 months bank statements are looking good and if they don’t, wait till they do and make sure there are no returned (bounced cheques/direct debits) items on the statements, that would be a straight decline.

logo of FCA

logo of FCA (Photo credit: Wikipedia)

Get a copy of your credit report and see what it says, make sure there are no mistakes on there, it is simple enough and that extra bit of preparation could be the difference between getting a car or not. Oh and use a proper broker that can make sure that he can help you along the process, you often only have one shot at finance so don’t let a bucket shop blow it for you. By Graham Hill

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Are You Prepared For The New FCA Credit Rules?

Monday, 24. February 2014

As we get closer to the time when the new Financial Conduct Authority (FCA) takes over control of the Consumer Credit Act it is important to make sure that you and your business, if you are an SME that isn’t a limited company, are in good shape for credit. In future lenders will want to carry out an ‘affordability test’ to ensure that you can afford your repayments.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

Whilst some lenders claim that their own affordability tests are already working well and therefore won’t change I personally think that you should assume that lending will tighten up, certainly in the short term. This strengthened affordability test may be in the form of an income and expenditure account or it may be copies of your last three months bank statements.

Whilst your income and expenditure report may show that you can afford repayments the one thing that will kill an application is a returned item shown on your bank statement, if asked for, because you have exceeded your overdraft limit or dropped into an unauthorised overdraft and the bank has not paid an item.

Having an overdraft that is being used isn’t a bad thing although it will probably knock a few points off your credit score but nowhere near as bad as having a returned item. So make sure that your last three months are clean. If not wait until any adverse drops off the last 3 months statements.

You can avoid a returned item if you cancel a direct debit before the money is applied for from your account but beware, this shouldn’t be a direct debit for finance, especially car finance, as a missed payment will show up as arrears. This is another situation that would cause finance to be refused.

You will also be asked for a copy of, or the original of, a current driving licence so make sure that you have both parts available, the paper and the plastic parts. Also make sure that if you have the newer licence that it hasn’t run out of date (has to be renewed every 10 years) and that it is showing your current address.

If you only have an old style licence then make sure that you have a current passport for photo ID to be provided at the same time. One of the issues I regularly address is the need by some funders to see a utility bill dated within the last 3 months. So if you are about to apply for credit make sure that you haven’t thrown away all of your bills as soon as you have paid them.

Mobile phone bills are never accepted and we are finding that fewer funders are now accepting credit card statements and council tax bills as proof of address. Landline telephone bills, water, gas and electric bills are all acceptable along with bank statements as long as they are paper statements not printed off the Internet.

In my book, Car Finance – A Simple Guide, I dedicated the first section to preparing for finance. Essential reading. Final piece of advice on the subject – if you are thinking of changing your car, do it now before the new rules kick in. By Graham Hill

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Graham Hill Warns About The New Financial Conduct Authority

Monday, 3. February 2014

We are getting close to the day when the new Financial Conduct Authority (FCA) takes over from the Office of Fair Trading (OFT) and launches its new guidelines to the finance industry. The new rules will affect all parties involved in ‘consumer’ finance. At one end of the spectrum the new rules will affect consumers as well as non limited SME’s such as sole traders and small partnerships, in the same way as the Consumer Credit Act covers these entities at present.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

The rules will also affect every provider of ‘consumer’ finance. In the motor trade that will include the finance organisations as well as dealers, brokers and introducers such as accountants and IFA’s, all will be affected by the new rules which will come into force from the beginning of April 2014.

For those currently providing advice they should have applied and paid for ‘Interim Permission’ that keeps their Consumer Credit Licence active whilst the changes are introduced. If, whoever you are dealing with, doesn’t have interim permission they are trading outside the law. The problem is that we don’t yet know exactly what the rules will be, making it impossible to prepare for them.

One thing is for certain, we will have much stronger controls imposed upon applicants for finance to prove that they can afford the repayments. This raises two issues, the first goes to the core of the credit industry which is down to the judgement of the underwriter. The word affordability is used in the proposed regulations but what does it mean.

We are told that applicants will have to provide some form of affordability proof. This is likely to be an income and expenditure statement. But if you take a person who can demonstrate income of £1,000 per month with expenditure of £1,001,including his vehicle costs, does this mean that he fails the affordability test?

He is hardly likely to pop to the pub for a pint if it means he can’t afford the repayment on his car which he needs to get to work in the first place to earn his £1,000 per month. So it will be interesting to see how this pans out and what additional pressures are placed on those providing and wanting finance.

It is a bizarre situation when someone else has to tell me if I can afford a repayment on a car or not. Personally I would die of starvation before I would give up my car through non payment of the monthly lease. Which brings us to the next point. After carrying out a more substantial test on applicants for finance it is reasonable to assume that far fewer applicants will receive credit approval, otherwise what would be the purpose of the massive investment and the changes to legislation?

So let’s think about that. I have a client who applies for finance on a Ford Fiesta at a prime rate of £150 + VAT per month. Unfortunately he fails the affordability test so he is now forced to go down the path of sub prime lenders. The current rate is around £295 + VAT per month for the same car.

But the sub prime lender must surely apply the same affordability test or is it a little less stringent – in which case it defeats the objectives of making sure the client can afford to make the repayments in the first place. By making sure he isn’t offered finance at £150 per month how on earth is he likely to be able to make payments at twice the rate?

The whole thing is starting to look like a farce but very worrying at the same time. The only advice I would give at this stage is that if you are looking to change your car this year do it before April you could give yourself an awfiul lot of work and be badly disappointed! Watch this space. By Graham Hill

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