The Commission looked at add-on products sold alongside motor vehicles that were bought on finance. The add-ons were paid for by adding their price to the loan taken out to buy the vehicle. They included mechanical breakdown insurance, cover for any shortfall arising between the insurance paid and any unpaid loan balance in the event of a total loss on the car, and insurance cover if the borrower is unable to make their loan repayments for a range of reasons including illness and redundancy. The add-ons also included products offered by lenders that provide for loan repayments to be waived in defined circumstances.

The review aimed to understand the roles and responsibilities of industry participants during the sales and lending process and to identify business practices which have the potential to cause harm to consumers. It has improved the Commission’s understanding of the industry, identified opportunities to provide guidance to industry participants, and will inform the Commission’s future compliance and enforcement work under the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) and the Fair Trading Act 1986.

During the project the Commission spoke with a range of parties including a selection of 15 lenders offering motor vehicle finance, five of whom also offer repayment waivers, as well as five insurers offering the insurance products under consideration.

Sixty-two consumers spoken to by the Commission had purchased a product which fell within the definition of credit-related insurance or a repayment waiver for the purposes of the CCCF Act. Their feedback suggested that some industry participants may be falling short of their legal obligations to assist consumers to reach an informed decision about purchasing an add-on, with some consumers reporting that they either did not understand the add-on they had purchased or were not aware that they had purchased an add-on at all.

“Dealers are often responsible for arranging finance for consumers and assessing their suitability for add-ons on behalf of lenders, while also earning a commission on any sales. Lenders must have adequate processes in place to ensure that dealers perform their delegated duties appropriately, and do not prioritise sales above the performance of those duties,” said Commission Chair Anna Rawlings.

“We will be meeting with lenders and insurers who participated in the review to discuss our observations and where necessary, we will issue advice about compliance with the relevant laws, including changes to the CCCF Act which come into force on 1 December 2021. We are also meeting with key industry stakeholders and the consumer advisory sector to share the information we have gathered about add-on products and how they are sold.”

A copy of the Commission’s Motor vehicle financing and add-ons review is available on our website here.