The UK’s Financial Conduct Authority (FCA) is investigating the widespread mis-selling of vehicle finance, specifically Hire Purchase (HP) and Personal Contract Purchase (PCP) agreements, with potentially millions of consumers eligible for substantial refunds. The FCA estimates that hidden commissions within these finance agreements have inflated interest charges, costing consumers over £1,100 on a typical £10,000 agreement. The investigation’s findings, expected in May 2025, could trigger a wave of compensation payouts reminiscent of the PPI scandal, with drivers who financed multiple vehicles or larger sums potentially receiving the largest refunds. Consumer champion Martin Lewis has highlighted the significant scale of potential payouts, comparing it to the billions refunded in the PPI mis-selling saga. Eligibility for a claim hinges on having taken out a PCP or HP agreement through a car dealership, garage, or broker.
HP and PCP agreements represent distinct pathways to vehicle ownership. An HP agreement functions as a structured installment plan, where the buyer makes an initial deposit (typically 10% of the vehicle’s value) followed by fixed monthly payments. Upon completion of the final payment, ownership of the vehicle transfers to the buyer. Crucially, the lender retains security over the vehicle until all payments are made, unlike a personal loan. PCP agreements, on the other hand, offer lower monthly repayments but don’t guarantee ownership at the end of the term. Monthly payments under PCP are calculated based on the vehicle’s projected depreciation. At the end of the agreement, the buyer chooses between making a final “balloon payment” to own the vehicle, trading it in for a new PCP agreement, or returning the vehicle to the lender.
The FCA’s investigation centers on the practice of “discretionary commission arrangements” (DCA), prevalent before January 2021, which allowed dealerships to set interest rates and earn commission based on the rate charged, incentivizing them to inflate interest rates for higher profits. This practice, now banned by the FCA, potentially affected millions of drivers who took out HP or PCP finance before the ban. Beyond DCA, an October 2024 Court of Appeal ruling deemed it unlawful for dealers to receive undisclosed commissions from lenders without the customer’s informed consent, further expanding the scope of potential mis-selling and paving the way for an estimated £30 billion in refunds.
Consumers who took out HP or PCP finance before January 28, 2021, are strongly encouraged to investigate their eligibility for compensation. Even if not directly affected by DCA, the undisclosed commission ruling significantly broadens the potential for mis-selling claims. While it is possible to pursue a claim independently by complaining directly to the lender and, if necessary, escalating to the Financial Ombudsman Service, utilizing a specialized legal service can streamline the process.
One such service, Get Your Refund, offers a “no win, no fee” structure, charging a fee (25% plus VAT of the refund amount) only if the claim is successful. This removes the financial risk for consumers unsure about the strength of their claim. While consumers have the right to pursue claims independently, using a legal service like Get Your Refund offers the advantage of experienced professionals navigating the complexities of the claims process, increasing the likelihood of a successful outcome. Their expertise in dealing with financial institutions and understanding the legal intricacies can prove invaluable for consumers seeking compensation.
The potential scale of this mis-selling scandal is vast, echoing the PPI scandal that resulted in billions being refunded to consumers. Millions of drivers may be unaware of their eligibility for compensation, highlighting the importance of understanding the implications of HP and PCP agreements and the potential for hidden commissions. By taking proactive steps to investigate their finance agreements and considering the support of specialized legal services, consumers can ensure they receive the compensation they may be entitled to. The FCA’s ongoing investigation and the landmark Court of Appeal ruling signify a significant shift in protecting consumer rights in the vehicle finance industry.
