Personal Contract Purchase (PCP) Mis-selling in Scotland
In March 2019 the Financial Conduct Authority (FCA) published a report following their investigation into the car finance industry. The report estimates that victims of PCP mis-selling could have paid, on average, as much as an additional £1,000 as a result of car dealers/brokers misleading them on interest rates.
The estimated cost throughout the UK could be as much as £300 million annually.
What is a PCP lease deal?
A Personal Contract Purchase (PCP) deal is now the most popular method of car finance for customers in the UK with 9 out of 10 new cars financed in this way.
PCP deals, in theory, offer a much more affordable and flexible method of car finance. Essentially it allows a customer to avoid paying the full cost of the vehicle up front and instead offers the option of affordable monthly payments. If PCP customers want to own the car at the end of the deal then they have the option to pay the remaining balance (also known as a balloon payment).
The majority of PCP customers elect not to pay the balloon payment and, instead, use the value of the vehicle at the end of the term as a deposit for a new PCP deal.
As part of the agreement, PCP customers pay a level of interest throughout the term of the deal.
How can mis-selling arise?
The usual process is for a customer to undergo an initial credit check and then meet with the broker to discuss an appropriate and affordable funding agreement.
The funding agreement will determine the level of interest rate which will apply throughout the deal.
Just because you have a PCP deal does not mean that you have been the victim of mis-selling.
Whether you are entitled to compensation will depend on the specific terms of your funding agreement and whether these were fully explained to you by your dealer/broker at the time.
In most cases the salesman is acting as both the car dealer and the financial broker. This allows them to recommend an interest rate payable by the customer, within parameters set by the lender, despite the fact there is a clear conflict of interest.
The FCA estimated that 95%* of franchise dealers, independent dealers and online brokers were using the following two funding structures:
The Increasing Difference in Charges (Increasing DiC) and the Reducing Difference in Charges (Reducing DiC).
Both of these commission models incentivised dealers to arrange funding agreements at higher interest rates for their customers. This broker discretion over interest rates resulted in a direct link between the amount of interest charged and the level of commission received by the broker.
The FCA have now banned DiC commission models to eliminate any conflict of interest and avoid similar mis-selling in the future.
Have I been mis-sold?
- Did your car dealer/broker fully explain the specific aspects of your funding agreement including the level of interest you would be paying?
- Did your dealer/broker discuss more than one potential funding agreement?
- Did your car dealer/broker disclose what level of commission, if any, they would receive?
If you were not made aware of all the material facts to allow you to make an informed decision then you may be entitled to compensation.
How do I claim?
If you believe you have been mis-sold a PCP deal then please complete our online form by clicking the button below or call 0800 0891 331 one of our specialist Solicitors will then be in touch to discuss your options.
*The FCA investigation and findings relating to commission arrangements were based on data obtained from a sample which represented up to 60% of lenders in the market
