PCP: The next big financial scandal

Millions of drivers who took out car finance loans before 2021 could get a payout as a result of a regulatory investigation into exploitative commission arrangements.

In this article, we explain what PCP is, and how consumers can claim back years worth of inflated interest rates.

What is PCP?

Personal Contract Purchase (PCP) is a type of flexible finance plan. It allows someone to borrow money for a vehicle purchase and then pay it back in monthly instalments. This would then usually be followed with a final, larger payment at the end of the term if they wished to take ownership of the vehicle.

About eight in ten new car buyers use PCP to purchase their vehicle – including from secondhand dealers.

By spreading the cost of a vehicle across multiple monthly payments for an agreed term, these kinds of deals made car ownership possible for those who may otherwise have struggled. However, it has become clear that consumers were being exploited – and that PCP may be the next big financial scandal.

A car finance scandal impacting 90% of plans

PCP agreements have been extremely popular for many years. But in January 2021, the Financial Conduct Authority (FCA) announced a blanket ban on ‘discretionary commission arrangements’ (DCAs).

They had discovered that lenders were allowing brokers and dealers to increase interest rates to get more commission – an unfair practice that affected about 90% of car finance deals.

This practice was incredibly exploitative: most consumers wrongly assumed the rate they were given was a fixed price – and never thought to negotiate. Because of this assumption, millions of people ended up significantly overpaying.

The FCA estimated that undisclosed commissions and high interest rates cost consumers an extra £300 million annually for vehicle finance.

Since this discovery, two big Ombudsman cases have also revealed that firms are falsely rejecting complaints! The FCA is now conducting a full review of complaint handling.

Collective redress: the best way to get your money back

In January 2024 the FCA launched a major investigation into hidden car finance commission. This could lead to millions of pounds of interest being paid back to millions of overcharged customers via legal action known as collective redress.

As Jasper Griegson, aka The Complainer, explains, this isa relatively new way for UK consumers to get justice.

It’s still early days, but several recent court cases have shown that there are grounds for consumers to make Plevin-style claims against dealerships for PCP interest rates and undisclosed commissions.

While it completes its investigation, the FCA has extended the window for motor finance firms to process consumer complaints about discretionary commission arrangements.

This means that while it encourages firms to accept and progress complaints, they don’t have to make any decisions until after the FCA reports the findings of its investigation.

The current schedule they have in place will close the investigation in 2025 – but there is a possibility that it will be extended.