The Competition and Consumer Protection Commission launches car purchase study into PCP car finance products


The Competition and Consumer Protection Commission (CCPC) is the independent statutory body that enforces the competition and consumer protection laws in Ireland.

The latest target of the Commission are the ‘complex’ PCP (Personal Contract Plans) deals which consumers are purchasing from car dealers.

This investigation come hot on the tail of last weeks raid on major companies in the insurance industry who they believe are working in a cartel fashion in keeping customers premiums artificially high.

In the latest investigation, the Competition and Consumer Protection Commission (CCPC) has launched a study into how the public perceives and understands Personal Contract Plan (PCP) car finance products. They are seeking to know if the general public is aware of all the intricacies of these plans and if consumers are actually aware of the kind of contracts they are entering into.

PCP’s are quite similar to hire purchase agreements, which many of us have heard of in the past. PCP’s have been around for a while now and they are estimated to account for one in three new car sales in Ireland. (Overall, one in nine cars in Ireland is under some sort of finance)

The new study by the CCPC will examine the experiences of PCP consumers and their understanding of the product they have signed up to, specifically they want to know the kind of information provided to consumers at the point-of-sale.

It has come to their attention that many consumers do not really understand these contracts when they are signing these contracts. He aim of the study into PCP finance is to analyse consumers’ understanding of PCPs, including the structure of the product and the options available to them at the end of the agreement.

The findings of the study will also determine the suitability of PCP finance contracts for consumers and it will also identify if the current consumer protection regime needs to change and bring in new legislation to regulate PCP finance deals.

At the moment in Ireland, PCPs are not licensed as a specific product but they come under the general financial conduct rules, so any findings by the study may have an affect on future legislation.

Consumers take advantage of PCP finance contracts because they can defray a significant portion of the cost of buying a new car up front by using the vehicle’s expected resale value at the end of the contract – normally lasting three to five years – to reduce the amount borrowed. This valuation is known as the Guaranteed Minimum Future Value (GMFV) and it is agreed at the start of the deal.

In return for deferring huge costs at the beginning, PCP buyers commit to various conditions of the contract. These limits will include mileage requirements. It will also require the consumer to have the car serviced by authorised dealers for the duration of the contract.  

Under the PCP plan, the borrower pays an initial deposit of between 12 and 30 per cent. This is often covered by the trade-in value of their current car. After driving away with a brand new car for an extremely low initial deposit, hey then pay monthly contributions covering the difference and of course the interest charges between the deposit and the GMFV (Guaranteed Minimum Future Value).

Ideally, at the end of the contract period, the car will be worth more than the GMFV and this difference can represent a deposit for the consumer’s next car. The worry for many, though, is that the final sum could be reduced if there is a sudden fall in used car prices when the contract is coming to an end. The larger the initial deposit made, the more the buyer stands to lose in such a situation.

The chairwoman of the CCPC, Isolde Goggin said that the agency’s findings can be used by policymakers to assess the suitability, or otherwise, of the current consumer protection regime:
“From our interactions with consumers, we know that PCP is an increasingly popular way for consumers to finance the purchase of a car. However, these products are relatively new and, considering their complexity, there is potential for consumer misunderstanding and detriment if they take out a product that may not be suitable for them.”

“We would like to hear from those who have a PCP agreement, particularly anyone who either experienced problems in understanding the product before buying or had difficulties after they signed up to the contract. You can contact us through our website”

(As always, if you or a family member are considering buying a used car, don’t buy until you run a car check report with where you will find out the true history of the vehicle.)