PCP Car Finance Scandal: Are You Owed Up to £1,000 in Compensation?

A major shake-up in the car finance industry is unfolding, with the UK’s Financial Conduct Authority (FCA) preparing to launch a redress scheme that could see thousands of motorists receive compensation — potentially up to £1,000 or more. The emerging scandal may rival the scale of the notorious Payment Protection Insurance (PPI) crisis, which led to over £50 billion being paid out to affected consumers.

The FCA, which regulates the UK’s financial services, has been examining the fairness of car finance agreements, specifically Personal Contract Purchase (PCP) deals. These finance products have become the go-to option for most car buyers across the country, whether they are purchasing a brand-new model or a second-hand vehicle. However, recent developments suggest that many of these agreements may have involved unfair practices that inflated costs for consumers.

In a pivotal move last September, the FCA announced it was significantly broadening its investigation into historical car finance deals. This expansion means that the potential pool of claimants is now much larger than initially thought, covering a wide range of consumers who purchased cars through finance arrangements before 28 January 2021.

The issue centres around the way some lenders allowed car dealers to adjust interest rates on PCP deals in order to boost their own commission. This system, known as a “discretionary commission arrangement,” was banned by the FCA in early 2021. However, customers who were affected before this ban came into effect may have been unknowingly overcharged, and as such, could be entitled to compensation.

Speaking before a Treasury Select Committee in December, the FCA’s general counsel and executive director of legal affairs, Stephen Braviner Roman, warned that the situation could be as serious as the PPI scandal. “I think it would be premature to say it’s definitely not the scale of PPI now,” he told MPs, highlighting the potentially vast financial implications for both consumers and lenders.

Currently, the matter is under review by the Supreme Court, which will play a decisive role in determining the legal framework for any compensation scheme. Once a ruling is made, the FCA has committed to consulting the public and stakeholders on the most effective way to deliver redress to those affected.

In the meantime, consumers who bought a car on finance before the January 2021 cut-off date are being urged to act. Even though the FCA has not yet finalised its redress programme, it is essential for potential claimants to lodge a formal complaint with their lender or broker as soon as possible to ensure their case is considered when the scheme is implemented.

Claimants do not currently need to go through claims management companies or solicitors to start this process. Most lenders have procedures in place to accept and process direct complaints. If a complaint is rejected, consumers can escalate it to the Financial Ombudsman Service, which may independently assess whether redress is due.

As this situation continues to unfold, millions of motorists could find themselves in line for significant payouts. Whether or not it becomes another PPI-scale scandal, the car finance compensation saga is already shaping up to be one of the UK’s largest consumer finance investigations in recent history.