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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

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

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