Car finance

Car finance mis-selling scandal: Are you due over £1,000 compensation from a PCP or HP deal?

Financial Conduct Authority expected to complete its investigations later this year

Car buyers in the UK who bought a car before January 28, 2021 may be due thousands of pounds in compensation over the mis-selling of car finance plans.

The Financial Conduct Authority (FCA) launched an investigation in January into the potential mis-selling of finance packages to millions of car buyers. It’s estimated that the probe could result in billions of pounds of overcharged interest and consumers could be due an average of £1,100 in compensation.

The focus of the FCA’s investigation is the practice of what were known as “discretionary commission arrangements” (DCAs). These DCAs allowed brokers or intermediaries for finance — which includes car dealers and salespeople — to artificially raise interest rates on an individual finance package. That higher rate would lead to more expensive repayments for the customer involved, but the higher rate meant that the commission given to the salesperson selling the package would also increase.

According to the FCA, such practices are unfair, primarily because consumers were often not informed of the commission side of the finance deals, with many car buyers agreeing to inflated-interest deals because they assumed they were being given a flat rate set by the finance provider. The FCA believes that if consumers had been made aware, they would have attempted to haggle over the rates resulting in lower monthly payments.

Evidence of wrongdoing following rule change

The use of DCAs was banned in January 2021 but the FCA feels that in the time since, it has amassed enough evidence of wrongdoing to launch a formal investigation.

Consumer champion Martin Lewis said he has received more than a quarter of a million emails from car buyers since launching his campaign to reclaim the mis-sold interest.

“To announce such a public wide-scale investigation, [the FCA] will already have substantial evidence,” Lewis wrote on his Money Saving Expert website. “What it’s doing now is building that at a firm-by-firm level using its heightened investigatory powers.

“I think it likely that, when the investigation completes, currently planned to be September, the FCA will set up some type of mass-scale redress scheme — though there’s a small chance it’ll change its mind and say this is a damp squib. The best way to act is to assume that scheme is coming.”

As many as four-in-ten finance packages affected

The FCA estimates that as many as four-in-ten of all car finance packages sold before the January 28, 2021 will have included some element of interest inflation. The FCA has paused its own investigation to allow car dealers and manufacturers a period in which they can self-investigate before the regulator issues a verdict on the practice of DCAs, expected to be on September 25 this year.

If those findings are as expected, it could open the floodgates to complaints and compensation on the same sort of scale as the Payment Protection Insurance (PPI) scandal. This involved banks and other financial providers charging extra for insurance that would cover customers in the event that they lost their job, had to take maternity leave or otherwise suffered a sudden loss of income.

As with the DCAs, in many cases customers were not told about the overcharges, and millions of customers received PPI recompense totalling billions of pounds. An industry grew up around helping those affected claim compensation.

Lewis recommends motorists don’t wait for the result of the FCA investigation. “Even with the FCA’s pause in place, we think it’s worth logging a complaint now to help reduce the risk of being ruled out if a future time limit is imposed,” he said. “Plus a time-logged complaint may be useful if it were to go to court in future.”

How to check if you’re due car finance compensation

How do you know if you were mis-sold car finance? If you bought a car on finance before January 28, 2021 you will need to check the fine print of the terms. It’s expected that car finance packages sold as far back as April 6, 2007 may be included for consideration, as this is when the Financial Ombudsman took over jurisdiction of motor finance complaints, though exact rules will likely be part of results the FCA’s investigation.

The FCA estimates 95 per cent of car finance deals had a commission model, and 40 per cent involved the crucial “discretionary commission arrangements”. 

The things to look for are whether the costs involved in any deal, especially extra costs such as excess mileage limits, were properly and fully explained; and if there was a lack of affordability checks, which a finance provider must carry out to ensure that you can actually afford the repayments. If one or both of those was the case, then there is a chance you may be due some compensation.

It’s important to remember that the investigation only applies to Personal Contrast Purchase (PCP) and Hire Purchase (HP) finance. Leasing, also known as Personal Contract Hire (PCH), is not covered and, obviously, neither are packages which were on a zero per cent interest basis.

For the most part, only deals sold to private car buyers are included, although a limited number of business purchases may also be eligible, depending on the individual circumstances. It is also possible to claim on behalf of someone who has died, though the lender may want to see a copy of the will and grant of probate to ensure the compensation goes to the correct person.

That compensation is likely to be modest in most cases — part of the issue is that those involved did have use of the car during the finance deal, a factor which somewhat dilutes the strength of any claim — but Lewis estimates that the average payout could be as high as £1,100.

The FCA has confirmed that anyone submitting a complaint or claim will not be blacklisted by the finance company involved, nor any linked companies. That was a practice, said to have been employed by finance companies in the wake of the PPI scandal, which the Financial Ombudsman quickly outlawed.

Money Saving Expert has launched a free tool to help start the compensation claim process: visit

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