During February, U.K. lender Paragon Group made headlines when it obtained a banking license and soft-launched its car finance product, as the company felt its way back into a market it once knew so well.
Between 1998 and 2008, the original Paragon Car Finance was a notable presence in the market, before the credit crunch forced its parent company to pull out of motor finance.
About two years ago, the company made the decision to reenter the market, but this time it would be done as a bank. In this task, Paragon benefited from recent banking reforms, as the Prudential Regulation Authority and Financial Conduct Authority have streamlined the process to get a bank license. “We are the first bank to be authorized through the accelerated program,” said Julian Rance, Paragon’s head of car finance.
Getting the banking license was a vital step to reentering the market and offered a number of advantages. “This time around, because we have the banking license, we are not constrained by the amount of funds we can lend because we can just take retail deposits and fund that way,” Rance said.
Launching as a bank will enable Paragon to increase its lending in various lines, with car finance the first of a number it
intends to pursue, with a savings function and secured lending set to follow.
“The biggest change for us will be affordability,” Rance said. “Customers will have to provide proof of income, and we will have to do an affordability calculation to make sure they can afford the loan, which I think is key.”