Mis-sold car PCP deals: could you claim compensation?

• Discretionary commission arrangements incentivised brokers to increase the buyer’s interest rate on car finance (e.g. Hire Purchase or PCP) over and above that charged by the lender
• The FCA banned discretionary commission arrangements on 28 January 2021
• If FCA finds ‘widespread misconduct’ and thinks consumers have lost out, buyers who used car finance before 28 January 2021 may be owed compensation
• FCA will announce ‘next steps’ by 24 September at the latest
• FCA warns motor finance firms to’maintain adequate financial resources’
• Martin Lewis’ MoneySavingExpert.com has had 1,080,000 of his car finance complaint letters downloaded and submitted since 6 February

Car PCP deals hit the headlines in February when the Financial Conduct Authority (FCA) announced it was starting a review of motor finance discretionary commission arrangements (DCA), prompting speculation that some car buyers could be in line for compensation for paying inflated interest rates on their deals.

This could apply to anyone that bought a car on finance before 28 January 2021 using hire purchase (HP) or a PCP (Personal Contract Purchase) arrangement, if it included a ‘discretionary commission arrangement’ for the broker.

In most cases, the broker is the dealer that sold you the finance (and the car).

Discretionary commission arrangements allowed lenders to incentivise brokers to increase a buyer’s interest rate over and above that charged by the lender.

This arrangement was subsequently banned by the Finance Conduct Authority (FCA) on 28 January 2021, so doesn’t impact cars bought on or since that date.

The FCA is using its powers under s166 of the Financial Services and Markets Act 2000 to review historical motor finance commission arrangements and sales.

Because these discretionary commission arrangements were not illegal at the time, most consumer complaints to loan providers have been rejected as they believe they haven’t acted unfairly or caused car buyers to lose out.

In an episode of The Martin Lewis Money Show Live on ITV, the consumer champion, Martin Lewis, suggested that up to 40% of car buyers who have bought their vehicles using finance before 28 January 2021 may have had discretionary commission arrangements in their contracts. A free car finance reclaim tool he created with template letters for consumers to use to make complaints regarding possible DCAs has been downloaded over one million times between February and early April, 2024.

However, before you start expecting to receive a compensation payout, you need to find out if your finance agreement included a discretionary commission arrangement, as not all had them. The information will be in the documents you signed when buying the car.

If you can’t see anything about this in the terms and conditions, then instead of asking the dealer (broker) that sold you the car and finance, go straight to the loan provider, but don’t expect a quick reply as while the FCA is investigating whether providers have breached any legal and regulatory requirements on car finance, it has paused the eight week deadline for providers to reply to complaints. When you do get a reply, if you’re not happy with it, the next step is to take your complaint to the Financial Ombudsman Service (FOS).

The FCA isn’t expected to reach a conclusion to its investigation until at least September 2024. If it decides consumers have lost out due to widespread misconduct, it will outline how people owed compensation receive an appropriate settlement in “an orderly, consistent and efficient way”.

The FOS has received many complaints regarding discretionary commission arrangements for car finance, and recently found two in favour of the consumer. Not surprisingly, the outcome of these cases and the possibility of receiving a compensation payout has caught the attention of the media and car buyers – as well as claims management companies (who charge consumers a fee for handling their case).

The media has already warned consumers to beware of scams from people claiming to be claims management companies. It doesn’t cost you anything to make a complaint to your loan provider or the FCO if you do it yourself, and the FCO has published some useful information about this: https://www.financial-ombudsman.org.uk/consumers/complaints-can-help/credit-borrowing-money/car-finance/complaints-about-commission

The FOS says that any complaints must have been made to your lender between 17 November 2023 and 25 September 2024.