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An investigation by the Financial Conduct Authority (FCA) estimate that the mis-selling of car finance could be costing consumers around £300 million annually!
Reasons your PCP car financial agreement may have been mis-sold to you
- The seller’s commission on your contract is not specified.
- The salesperson seller who sold the contract fails to properly define interest changes correctly.
- Car dealers have failed to explain who actually owns the car, whether it is the car dealer or a third-party finance company.
- The seller did not disclose who was responsible for the car repairs.
- You were not provided with a wide range of options, as some similar financial products may have worked out at 50% cheaper than the PCP agreement.
The 8 main points of Motor Finance Mis Selling
It has been revealed that lenders often hide the existence of a commission offered to their brokers. A mysterious shopper exercise reviewed the procedures followed by 122 vendors in their provision of Motor Finance. Of those 122 vendors, only 11 disclosed to the customer that the commission could be accepted by the seller through financial planning. This violates the requirements of the CONC as it creates an unfair relationship between the customer and the lender. You may claim compensation for your current or past vehicles.
It has been found that lenders often encourage a seller to charge exorbitant interest rates by compensating them with a commission equal to the interest charged. The estimated cost of this behavior to the customer is £ 300m annually. The FCA consultation entitled: ‘Motor Finance discretionary commission models and consumer credit commission disclosure,’ found that Difference in Charge models was the most harmful to the customer showing that 95% of the 1000 agreements the FCA looked into being affected.
The above-mentioned secret exercise conducted by the FCA also sought to investigate whether or not lendors would fully disclosed all the required information about the Motor Finance agreements to be made. The investigators found that the concept of car ownership under a PCP is often poorly explained or misinterpreted. 69% of secret shoppers were not told by the broker that they will not be the owners of the car completely unless they have paid the final balloons payment. The FCA concluded that ‘they are not satisfied that the firms are complying with regulatory requirements.’
Lenders are required by law to provide an APR for a Motor Vehicle Agreement so that the customer can compare products, however, they are free to provide equal representation of the APR. A common example comes in the form of flat interest rates. The flat rate interest is applied to the starting balance for the entire duration of the loan period regardless of the amount paid. This means that as a percentage value, flat rate interest rates are much lower compared to other types of interest while providing the same return. Failing to explain to the customer these important details of their interest rates, lenders are violating UK consumer credit law.
There are concerns about some retailers trying to get customers approved by second-line lenders if the customer is declined by their principal lender. This could result in much higher rates as the finance company they may be approved by would probably provide specialize in subprime lending.
It seems that a staggering number of PCP companies seem to be operating without regulation. They have been manipulating PCP’s to their own benefit at the cost of the consumer. Many retailers have been operating without the supervision of FCA regulators which is not only negligent but also illegal, this improperly puts the consumer in a very dangerous position.
The Charge Variance Agreement has indicated a direct correlation between broker earnings and higher customer interest rates. Only now regulators are clamping down on lenders to review their systems, showing the fact that traders have been earning high commissions from high interest rates. The FCA has warned that thousands of customers could pay 50% more interest than needed.
There are many types of unfair and incorrect charges you can get with a badly sold PCP. One of the most common cases is from the ‘Mileage Limit’ which if passed, the money would be much higher. People are often not notified of the exact details of the mile limit so it becomes much easier to exceed the limit and get charged. The other fee you should look for is ‘Wear and Tear’ because even though you may believe that you have kept the car in good condition, sellers can count the little things customers do not know are part of the charge and the amount of money you have to forfeit will not be small.
Important links and information related to the misselling of car finance agreements (PCP or otherwise)
Below are some handy links relating to mis-sold car finance FCA report on the misselling of car finance In 2019, the FCA released its findings on PCP agreements being mis-sold.
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