PCP mis-selling uncovered by FCA Investigation

It’s being described as a ‘mis-selling bonanza’ by the tabloids, as UK regulators unearth the extent of mis-sold car loans. With around 9 in 10 new cars purchased through PCP deals, it’s now come to light that car salespeople have been overcharging customers in a bid to earn more commission.

PCP Loans are personal contract purchases, they suit those who like to or need to change their car regularly but still want to stick to reasonable monthly payments, within budget. Unlike a usual loan, once a PCP deal is completed, you won’t pay off the full value of the vehicle and you won’t automatically own the vehicle at the end of the contract.

Some UK dealerships are now under fire following a two-year investigation by the Financial Conduct Authority. The probe began in April 2017 following a surge in household debt and complaints about PCPs hit record levels.

The FCA have discovered that the extent of the overcharges is an average of £1000 per customer, resulting in a collective £300Million a year in excess interest payments.

As claims management companies investigate the way the PCP loans have been sold, it appears many have been misled regarding; interest rates, how much their vehicle would be worth at the end of the deal or if there would be penalty fees if you looked to switch your vehicle early. Dealers have not done enough to make customers aware of potential higher interest rates on a PCP deal, as opposed to a standard hire purchase agreement.

The car finance market has been under heavy criticism recently over the growing number of loans being taken out and as a result, new record levels of debt. The issue being highlighted here is over sales people at these dealerships taking high levels of commission.

The FCA found that the monthly PCP payments were often linked to the level of interest charges, “giving salesmen an incentive to ratchet up the cost of a finance deal.”

Their findings also uncovered;

– Many dealerships fail to properly explain how the PCP contract works

– Failure to perform affordability checks to ensure customers can afford the repayments of their loan

– A majority fail to inform customers that there is commission involved when they set up a loan, although this isn’t currently a legal requirement

“We found some motor dealers are overcharging unsuspecting customers over £1,000 in interest in order to obtain bigger commission pay-outs for themselves…. We estimate this could be costing consumers £300million annually. This is unacceptable.” The FCA’s Director of Supervision, Jonathan Davidson commented on the situation.

It’s important to note that the FCA have indicated that it will start to consider a ban of certain types of commission but that it’s not planning on enforcing punishment on lenders over existing loans.  

Whilst many may view going directly to a dealership as the more traditional route to purchasing a new vehicle, it’s not, as the FCA has highlighted, always the most financially stable option. Dealerships offer a deal to you from a limited resource of finance houses, whereas an independent broker, such as CAVA Finance has access to a whole market to be able to secure a suitable loan for you.

If you’re considering your next purchase, think about the benefits of CAVA’s experience and that we’re not fuelled by a need to gain high levels of commission!