Most people have seen coverage in the news media about the emerging car finance scandal. The question is, how far back can you make a mis-sold car finance claim? Thousands of motorists have been affected, with many already making PCP car claims to either a motor manufacturer or third-party finance company. However, the situation is far from clear, with ongoing litigation in the Court of Appeal and disagreement between industry experts and commentators on which way this will go.
Most new and used car purchases in the UK are supported by car finance agreements such as through BMW financial services, Black Horse Finance, and the like. At least 80% of customers use a Personal Contract Purchase (PCP) agreement to fund their next motor vehicle. So, the chances are, you may be one of those people. In fact, you may have had several cars over the years, and some car finance agreements are for very high-value vehicles.
In this guide, we’ll cover all the aspects of PCP claims, including a detailed explanation of a PCP agreement and, crucially, how far back you can go to claim and how much compensation you could be entitled to. Our FAQ section at the end covers all your other questions, such as whether you should use a compensation claims management company, whether you can make multiple claims, and how long you have to make a complaint. Let us answer all your questions.
Understanding PCP Finance Agreements
There are different types of UK car finance agreements, but the most common and popular is Personal Contract Purchase (PCP).
It’s easy to see why PCP is so popular. This type of finance agreement allows customers to make smaller monthly payments and features a GMV—Guaranteed Minimum Value—protecting them against the rapid depreciation of a new vehicle.
At the end of the agreement, there is a lump sum final payment called a “final balloon payment.” Customers can make this payment to buy the car outright or give the car back and start again with a fresh agreement on a new vehicle.
Sounds too good to be true? Well, most PCP agreements do just what they say on the tin. However, whilst the monthly payments are attractively low, there can be cheaper ways over the long term to finance new cars.
The big question is, if a PCP agreement is so popular, where is the element of car finance mis-selling and why was it so widespread?
The Personal Contract Purchase Car Finance Scandal
It all began when one or two customers discovered that the finance provider had charged them a higher interest rate on their car finance agreements because the car dealer benefited from discretionary commission arrangements.
Discretionary commission arrangements (DCAs) involve car finance companies inflating the interest rate, and the dealer receives a bonus commission payment for doing so. In almost all cases, the salesperson failed to reveal DCAs to the customer.
One or two customers complained to the Financial Services Ombudsman alleging mis-sold car finance, and these car finance claims are now the subject of litigation, currently in the Court of Appeal. The Financial Conduct Authority (FCA) is also conducting a thorough review and is due to issue an update in 2025.
In the meantime, thousands of customers who believe they have been mis-sold car finance are registering a claim either directly with the car finance provider or via a claims management company who will handle the full process on your behalf for a small fee – typically under a no win no fee claim like the legal team we work with.
The FCA has stated that claims don’t have to be resolved at this stage whilst they await developments in the legal process and continue with their own investigation.
However, many of the biggest finance providers, like Black Horse Financial Services, part of the Lloyds Banking Group, Close Brothers, and Barclays, have put aside substantial reserves in anticipation of an avalanche of compensation claims. Lloyds has set aside £450m for potential compensation claims and has now stopped paying commissions to car dealers on car finance loans. Motor industry commentators think the whole mis-sold car finance scandal could be similar in size and scale to the mis-sold PPI claims of twenty years ago.
What Is The Significance Of The Court Of Appeal Decision?
At the end of October 2024, the Court of Appeal ruled that it was unlawful to have commission arrangements without the customer’s consent or knowledge. The court said borrowers must know all the material facts that should be disclosed in the paperwork, including the commission arrangements.
Discretionary commission payments often affected the interest rate applied to car finance agreements. The court stated that customers should know about the impact DCAs had on the interest rate so they could make a fully informed decision about their borrowing and look elsewhere for other finance options that may have a more competitive rate, for instance, on a personal loan.
This case was brought against Close Brothers and FirstRand Bank, and both companies have said they will appeal the decision.
The Financial Conduct Authority had delayed the announcement of their investigation pending the outcome of this case and has now kicked the can down the road again with a scheduled update in May 2025. However, this doesn’t mean you shouldn’t register your claim as soon as possible if you believe you have been mis-sold car finance.
How Do I Know If I Have A Legitimate PCP Claim?
Anyone who took out car finance before January 2021 could be eligible to make a claim. January 2021 is significant because the Financial Conduct Authority (FCA) banned discretionary commission arrangements on car finance agreements after that date.
You may be eligible to make a claim if you entered into a PCP agreement with a UK car finance provider between April 2007 and January 2021.
Mis-selling occurs on PCP car finance agreements for many reasons, including undisclosed commission fees and lack of proper affordability checks, so it’s worth getting an expert to examine your car finance loan. Here is what mis-selling might look like.
- The salesperson didn’t disclose discretionary commission arrangements and that they would receive a payment from the lender
- The salesperson didn’t inform you of the possible finance options open to you, including explaining the advantages and disadvantages of each product
- The salesperson didn’t fully and transparently discuss the different interest rates available to you and how they might vary across different financial products
- You were not advised of the cheapest interest rate
- Proper affordability checks were not carried out
- You weren’t allowed enough time to consider the agreement or make comparisons with other finance providers
It is the responsibility of the lender or car dealership to prove that they adequately fulfilled all of these obligations; they have the burden of proof, not you. If they cannot support this, then you may have the right to make a PCP claim.
Make a claim with PCP Claims UK today.
How Far Back Can PCP Finance Claims Go?
We’ve already mentioned that the window for a PCP compensation claim is between 2007 and 2021. So what’s the significance of 2007?
This was when the Financial Ombudsman Service took over jurisdiction of car finance complaints, so it’s unlikely that older claims will be eligible. However, it is expected that, as part of the investigation, the FCA will clarify this when it announces the results of its review into mis-selling car finance, so watch this space!
Key Facts About Claiming
PCP finance agreement claims include cars, vans, and motorbikes. Used vehicles are included, not just new cars. You can even claim compensation for mis-sold car finance on an active PCP agreement you’re currently paying for. There is no limit to how many claims you can make. Some complainants have had several PCP deals between 2007 and 2021. They can claim on each one that has had a hidden DCA in place.
How Does The PCP Claims Process Work?
At the moment, if you want to claim compensation and you believe you were mis-sold a PCP deal, then your finance company is probably only recording your complaint. They don’t need to do anything further at this stage whilst waiting for the next announcement from the Financial Conduct Authority.
If you contact our team, they’ll assess all the details of your claim, but they can’t embark on the claims process other than to contact the provider on the finance agreement and register your possible complaint.
They will ask the provider or finance company if there was a DCA in place on your agreement. Finance companies have to answer this, although many are taking weeks or months to work through a massive volume of potential claims.
When we get the green light from the FCA, we will pursue your claim using our No Win, No Fee PPC claim solicitors. You won’t pay any legal fees because our solicitors work on a success fee basis, sometimes called a Conditional Fee Agreement (CFA).
We will explain all this to you and go through all the paperwork so you are completely clear about what will happen next. If your claim is successful, the solicitors will take their fee as a percentage of the compensation. If the claim is unsuccessful, you won’t pay a penny.
Understanding Compensation For Mis-Sold Car Finance
The car finance mis-selling scandal looks like it will be huge. So, it is likely that the FCA, if it upholds the premise of mis-selling, will set out a consumer redress compensation framework to be applied universally by all parties in the motor industry. This should be announced by May 2025.
The compensation formula will have to reflect a fair and prevailing interest rate at the time and compensate for an interest rate applied to a Personal Contract Purchase (PCP) finance agreement that was higher than this. Any compensation awarded will also be subject to statutory interest, which is currently 8%.
The Financial Ombudsman Service had already resolved one or two of these consumer complaints before the FCA became interested and announced their industry-wide investigation.
In one FOS case that found in favour of the consumer, the buyer had been charged 5.5% on their loan agreement, considerably inflating the monthly payments, when they could have accessed an interest rate of 2.49% without the broker’s commission.
The lender was told to pay the consumer the difference between the payments plus 8% statutory interest on each overpayment.
Several different factors influence the amount you may be able to claim: –
- The larger the loan agreement, the more you may be able to claim
- The longer the agreement, the more you may be owed
- The difference between the actual interest rate you paid and what you could have been offered
DIY vs. Professional Help For PCP Claims
If you want to make a mis-selling claim, you have two options: do it yourself or seek professional help via a claims management company.
Handling a claim yourself can be daunting, and some motor finance providers accused of mis-selling have already tried to put people off by rejecting their claims.
Claims management companies can provide expertise and navigate the legal process for you. You lodge your complaint, and they will handle everything else for you, including negotiating with the finance provider.
They won’t accept an offer for compensation without discussing it with you first, and you won’t pay a penny in legal fees unless you are awarded compensation.
Final Thoughts
If you think you may have been mis-sold car finance by car salespeople and that you paid extra interest on your PCP deal due to a higher interest rate because of discretionary commission arrangements, then you might be able to claim compensation.
It’s important to lodge your complaint about a mis-sold PCP agreement as soon as possible. Even though your car finance provider doesn’t have to resolve your mis-selling complaint, they can confirm whether your agreement was subject to a DCA.
The Financial Conduct Authority (FCA) has already said that commission was paid on 95% of UK car finance agreements, and it estimates that as many as 40% of these agreements may have been mis-sold. You could be one of them.
Frequently Asked Questions
What Happens If I Don’t Have The Paperwork From An Old Loan Agreement?
Provide what you have, such as your personal details, including your name, date of birth, and address at the time, to the car finance company, car dealer, or claims management company if you’re using one. Even with minimal information, they should be able to find a record of your loan agreement. If you really can’t remember the car, then a claims management company may be the best people to progress your claim for you.
I’ve Read That Claims Are Time-Barred After Six Years. Is This True?
The Limitation Act 1980 makes it clear that claimants can only pursue a compensation claim for up to six years from the date their car finance agreement started, and the FCA has confirmed this. However, there is a caveat to this: if you weren’t aware of a problem or any mis-selling, then the time period doesn’t start to run until you find out about it. However, in this case, the six years is reduced to three.
Are There Any Other Restrictions On Making A Mis Sold Car Finance Claim?
The vehicle under the agreement must have been used primarily for personal use, not business. Personal use includes commuting to and from your place of work, but if you’ve been using the vehicle regularly for business or paying via a business account, then it’s likely your PCP agreement will not be eligible for compensation. However, it is probably eligible if your car has been financed via a business loan supported by a regulated credit agreement for under £25,000 but used primarily for domestic driving purposes.
Can I Make A Mis-Sold Car Finance Claim On Behalf Of Someone Who Has Passed Away?
Yes, you can reclaim on behalf of a deceased family member, but you will have to have the legal capacity to do this. Car finance companies will likely want to see a copy of that person’s will and the Grant of Probate (or Letters of Administration if they died without a will). This is to ensure that any compensation goes to the right person.
Can I Make Multiple Claims?
If you have several PCP agreements on which there were DCAs, you can make a claim for mis-sold car finance on each of them. Industry commentators suggest the average payout will be £1,100, so if you have several mis-sold car finance agreements, then you could be in line for compensation of several thousand pounds.
Can I Make A Claim For A Hire Purchase Agreement?
Hire purchase agreements are also included under PCP finance claims. Hire Purchase is different from Personal Contract Purchase. With Hire Purchase, your monthly payments pay off the car’s total value.
Can I Make A Claim If The Car Is Paid Off Or If I No Longer Have The Vehicle?
Claims can go back as far as 2007, so you don’t need to have the vehicle still, and it also doesn’t matter if the loan agreement has been paid in full either. Neither of these things will impact your ability to bring a claim. You can even claim if the car is repossessed because you couldn’t keep up with the monthly repayments.