Change for the better

Opportunity knocks for dealers with changes to Consumer Credit Act

April 2005

Far from being wary of their introduction, dealerships should embrace the changes to the Consumer Credit Act (CCA) that came into force on 31 May last year, according to Paul McGill, director at Bank of Scotland Dealer Finance.

He believes the two main changes in the Act affecting the motor finance industry, the form and content of finance agreements and the early settlement process, are an opportunity for finance houses and dealers alike to re-establish point of sale finance as the best and most flexible means of purchasing a car.

He comments: "The changes from May 2005 will make the process of buying point of sale finance more transparent and contracts themselves fairer and easier for customers to understand.

"It's understandable that dealers might be wary of what seems like another move towards commission disclosure - the ultimate in transparent contracts. This is on the cards. It's already happened with regards to declaring commission on the sale of life insurance products and in the US a voluntary code to reveal commission rates is proposed."

Bank of Scotland Dealer Finance believes dealers are in the unique position of knowing exactly when a sale is going to happen and these changes could provide an additional opportunity to ensure customers feel confident that the dealer's showroom is the best, most convenient and obvious place to borrow funds for their vehicle purchase.

Concludes McGill: "The changes really could help to improve the position and perception of point of sale finance. And that's good for everyone."

CCA changes that dealers should be aware of:

Early Settlement of Accounts

  • The Rule of 78 method has been replaced by an actuarial method. This calculation will calculate the settlement sum due on the date of settlement and will be valid for a period of 28 days.
  • Insurance Premium rebates are not to be covered under the changes and therefore will still be calculated on a Rule of 78 method.
  • The provision of early settlement quotations to customers is shortened from 12 to 7 working days.
  • For changes to existing finance for a term of 10 years or less, the deadline for implementation is May 2007 and for existing finance for a term of 10 years or more it will be May 2010.

Form and Content of Agreements

  • The form, content and layout of documents will be revised to make them clearer and more transparent to the customer. All agreements will include the following key headings and will be in a set order:
    • Key Financial Information
    • Other Financial Information
    • Key Information
  • Dealerships will be obliged to provide pre-contractual documentation for all agreements prior to the contract being concluded with the customer. This will be in the form of a separate document in durable format which can be taken away by the customer.
  • The pre-contractual information will have no signature boxes and will include:
    • A clear APR
    • Amount and frequency of repayments
    • Duration of agreement
    • Total charge for credit
    • Information about the right to cancel

Press contacts: James Crawford or Nancy Jones at Euro RSCG Biss Lancaster on 0161 236 2277 or email firstname.lastname@bisslancaster.com