What the FCA’s PCP Mis-Selling Investigation Means for Motorists

How much are you paying for your Personal Contract Purchase (PCP, a type of hire purchase with reduced monthly instalments and a final balloon payment linked to the vehicle’s residual value)? How would you feel if someone told you that you were overcharged thousands? Certainly outraged and considering a PCP claim.

That is how thousands of British consumers felt after an investigation by the Financial Conduct Authority revealed their contracts were overcharged by thousands. This exorbitant amount of money generated an estimated £300Million a year in excess interest payments for some UK dealerships.

The FCA’s investigation started in April 2017 following a spike in household debt. Back then, complaints about PCP payments reached unprecedented proportions. That’s why many car owners are now considering a PCP claim.

But how could this happen?

Car dealers mis-sold PCPs in several ways, according to the investigation. Drivers were billed excessively over interest rates. They were also misled about the value of their vehicle at the end of the deal. Additionally, they were misinformed about the penalty fees incurred if they decided to switch cars before the end of the contract. Dealers also deliberately omitted that PCPs had potentially higher interest rates than a standard hire purchase agreement.

In some cases, dealers did not check if customers could afford the repayments of their loans, resulting in a spike in debt levels. Customers were also not informed of commissions charged by sales representatives. Although this is not a legal requirement, it is considered “best practice” in the industry.

In addition, the FCA found that commissions were often connected to the interest rate charged, encouraging salespeople to increase the cost of a finance deal.

Has it affected me?

Personal Contract Purchase (PCP) deals can be complex by nature, and it doesn’t mean that the dealer was necessarily trying to mis-sell the product. However, due to its intrinsic nature, the contract might be difficult to understand, leading to some dealers misleadingly presenting PCPs.

You can probably start a PCP claim if:

• A dealer claimed you were getting a better deal or that a PCP deal is a more economical option than a hire purchase deal.
• The balloon payment at the end of the contract caught you off guard.
• The dealer told you that you would make a profit.

A PCP is not intended to generate profit for the customer. Its main advantage is allowing customers to use a car paying less than they would in a hire purchase deal.

• You signed up for car finance before January 2021.

Before January 2021, around 40% of car finance deals had a commission model in which the higher the interest rate, the more commission the broker received. A ban on this commission model, imposed by the FCA, took effect in January 2021.

If you do not know if a commission was taken, ask the dealer or finance company to clarify and inform you how much was paid and how it was calculated.

• You were misled into buying unnecessary ‘hidden’ extras.
• The extra mile payment caught you off guard.
• The dealer charged you an unfair amount for damages.
• You were not aware that you would have to pay a balloon payment to own the car.
• You struggle to make your monthly payments.

How to check if you can make a PCP claim?

Simply put, you must take action to receive your money back. The FCA’s investigation has led to consumers making various car finance claims.

The whole process is quick and easy. The first step is to use our eligibility check to see if you can ask for PCP compensation. It takes only two minutes to complete the form. The second step is to relax and wait for our team to get in touch.

Don’t let dealers and finance companies take advantage of you. Check if you can start a PCP claim now.