The FCA has found that discretionary commission arrangements were paid on around 40% of UK car finance PCP agreements. If you were not informed about this commission or the finance deal wasn’t right for you, you could be owed compensation in mis-sold car finance compensation. Find out if the panel of Mis-sold PCP Solicitors can help. 

If you have purchased your vehicle via a car finance deal, your lender is obliged to inform you of exactly what is involved in that deal. You must make an informed decision so that you know the finance deal is right for you. Car salesmen or women cannot act in their own interest.

If you were not informed thoroughly about your PCP agreement and the costs involved, you could be owed mis-sold PCP car finance compensation.

If you used PCP or HP to finance a vehicle between 2007 -  2021, you could be owed compensation. 

What Are Mis-Sold Car Finance (PCP) Claims?

You may have been a victim of mis-sold car finance if you have received negligent or poor advice in relation to your car finance options between the years of 2007-2021, or if you were not made aware of any commission being charged within the agreement.

Specifically, our legal panel's claim focuses on Discretionary Commission Arrangements. Discretionary Commission Arrangements were a type of agreement between car dealers (or brokers) and lenders where the dealer had the discretion to adjust the interest rate offered to the customer, and in doing so, increase their own commission.

The lender might have been misleading about the extra costs involved, or they may have charged you more interest than they should have.

Below, we explain exactly what is involved in bringing forward a mis-sold car finance (PCP) claim and how you can begin. If you have any questions that we haven’t answered, get in touch with the panel of mis-sold PCP lawyers that our sister website, claim.co.uk, has created.

Some motor dealers are overcharging unsuspecting customers over £1000 in interest charges in order to obtain bigger commission payouts for themselves. This is unacceptable. Jonathan Davidson, director of supervision for retail and authorisations at the FCA.

Who Can I Claim Against?

Which Manufacturers Are Involved?

What are the most common types of Mis-Sold Car Finance Claims?

Discretionary Commission Arrangement

A Discretionary Commission Arrangement was a type of arrangement between car finance lenders and dealerships that allowed the dealer to adjust the interest rate offered to the customer. The higher the dealer set the rate, the more commission they earned - creating a clear conflict of interest.

The problem? Most customers were never told this was happening.

This meant you could have been charged a much higher interest rate than necessary, not based on your creditworthiness, but simply to boost the dealer’s earnings. The commission structure was often hidden, leaving consumers unaware they were paying more than they should.

The Financial Conduct Authority (FCA) banned these agreements in January 2021, stating they led to widespread harm and poor outcomes for customers. If you took out a PCP or HP car finance deal between 2008 and 2020 and were not told how commission was calculated, you may have been mis-sold and could be entitled to claim compensation.

We have around 200 complaints from consumers unhappy about the levels of commission they’ve paid on their car finance agreements. Bea Lovestone, policy advisor at the Financial Ombudsman Service

What is Hidden Commission?

A hidden commission in car finance refers to a situation where a dealership, broker, or salesperson receives a payment from a lender - without clearly telling the customer. This commission is usually paid as part of arranging the finance agreement, such as a PCP or HP deal.

In many cases, the dealership earned this fee by increasing the interest rate you were charged. However, customers were often unaware that commission was being paid, how it was calculated, or that the dealer had any incentive to raise the cost of borrowing.

Is It Illegal?

In a recent ruling, the UK Supreme Court confirmed that hidden commission payments are not automatically unlawful. This means that the existence of a commission alone does not make a finance agreement invalid.

However, if the commission was not disclosed in a clear and fair way, or if you were misled or not told about how the dealer was being paid - you may still have a claim. This is especially true in cases involving a Discretionary Commission Agreement (DCA), where the dealer had the power to increase your interest rate to earn more money.

Secret Commission in Car Finance PCP Deals

Official reports from the Financial Conduct Authority have shown that the car finance providers have a habit of concealing the existence of any commissions offered by their brokers. In their investigation in regard to the mis-selling of Car Finance (PCP), they found that:

• Out of the 122 car dealerships visited by mystery shoppers just 11 car dealerships confirmed that commission will be added on this type of deal.

Conflict of Interest

This potentially leads to a huge conflict of interest. The car dealerships are supposed to be separate from the finance providers, but such discretion could lead to salespeople adjusting interest rates in order to earn more commission from the deal. In essence, there is an incentive for the salesperson to broker a finance deal at a higher interest rate, to the detriment of the customer.

Customers overcharged

Some cases show that customers are being overcharged by over £1,000 in interest in order for the dealership to obtain a higher commission pay-out. The FCA estimates this could be costing consumers £300 million annually.

Unregulated

In addition to this, the FCA found that an alarming number of the PCP (Personal contract purchase) firms have been carrying out this process without any regulation. These finance brokers often act without any oversight from the FCA which not only means the customer is not protected, but is also illegal.

The FCA bans Discretionary Commission in car finance

In June 2020, the FCA banned commission linked to car finance deals outright. This means that car finance brokers won’t be allowed to charge a commission based on the interest rate offered from January 28^th 2021.

This is particularly pertinent as figures show around nine in 10 new cars in Britain are bought on finance. The FCA estimate that the move will save consumers around £165million a year.

You are still able to claim compensation if you believe the commission was hidden from you in a previous car finance deal.

I’ve been doing this work for 38 years and, frankly, we were getting away with murder. We weren’t treating customers fairly and were, in effect, charging them to earn us money. The FCA’s ban means all the wheeling and dealing is over. It’s not trying to stop us from earning money – just from taking the p*ss. Anonymous finance broker, speaking to Autocar

What can you claim compensation for?

People who have been mis-sold their car finance agreement can potentially claim compensation if they believe they have fallen victim to any of the above issues.

Who can claim Mis-Sold PCP Compensation?

If you bought via a car finance agreement between 2007-2021, then it is possible you may be eligible to claim mis-sold car finance compensation.

You may be eligible to claim if:

• You purchased your car via car finance/HP/PCP agreement
• This happened between 2007-2021
• The lender was known to use the DCA model

You may have been a victim of mis-sold car finance if you have received negligent or poor advice in relation to your car finance options or if you were not made aware of any commission being charged within the agreement.

You can also claim for multiple cars through one form using our eligibility checker. 

Was my car finance mis-sold?

In relation to your potential mis-sold PCP claim, your car finance deal may have been mis-sold if:

• The car salesperson did not fully explain they would receive a commission on the sale of the car
• The commission was excessive
• The salesperson skipped through the car finance agreement Terms & Conditions
• The customer felt pressured into the finance deal and was not given a range of options
• The PCP payments were unrealistic and no finance credit checks were carried out
• The DCA model was used to determine the commission

How is compensation calculated?

Evidence suggests that some customers have been charged thousands more than they should have. While the exact amount of compensation will vary, there are several factors to take into account. These include:

• The size of the loan – the larger the loan, the more you’ll be owed
• When you signed up – the longer you have been paying the loan off, the more you’ll be owed
• The interest rate and the difference between the rate you should have been quoted

If you are unsure, ClaimExperts.co.uk’s expert panel of solicitors will be able to let you know if you are eligible to claim mis-sold car finance compensation and, if so, how much you might be able to retrieve in compensation.

The FCA Findings on Car Finance Mis-selling

The FCA conducted a report into car finance and the potential mis-selling in the UK. They sent mystery shoppers to 122 car dealerships.

• Out of the 122, only 11 car dealerships confirmed that commission will be paid
• Only 31% of dealers explained to the customer that they do not own the vehicle at the end of the contract unless they pay the larger end payment
• 28% of the car dealers failed to outline the consequences of missed payments
• The FCA have estimated that the mis-sold car finance scandal may cost UK consumers £300,000,000 per year

Mis-sold Car Finance PCP FAQs

What is PCP?

Personal Contract Purchase (PCP) is essentially a personal loan taken out in order for you to purchase a car. Unlike a normal loan, however, you won’t be paying off the full value of the car, and you won’t own the car at the end of the deal – unless you agree a much larger final payment.

What will it cost to make a claim?

Bringing forward a mis-sold PCP car finance claim will cost you nothing. Making an enquiry to our expert panel is completely free. If they agree to take your claim on, it will be on a No Win, No Fee basis, meaning you will not be charged for the time they have spent on the case if they are unsuccessful.

No Win No Fee fee: up to 36% (inc. VAT). You can cancel within 14 days at no cost, but cancellation fees may apply after this period. 

How long will the claim take?

The claim is currently on hold until the FCA decides on further steps. Once we have clarity from the FCA, claims should take a matter of weeks.

How Can We Help?

If you believe you have a mis-sold car finance claim, ClaimExperts.co.uk’s sister website, claim.co.uk, has an expert panel of solicitors that can help bring your claim forward.

Their specialist panel of car claims solicitors are able to bring a claim on your behalf and not only hold dealerships and finance providers to account, but also get you compensation while doing so. 

Contact Us

If you believe you have been mis-sold a car finance deal, you can discover if you are eligible to claim today. Fill out the short enquiry form on claim.co.uk to start.

You can claim for free, either directly or via the Financial Ombudsman Service.