Speculation is growing that hundreds of thousands of UK motorists may soon be able to claim substantial compensation for the mis-selling of PCP car finance.
The Financial Conduct Authority (FCA) has just published its final report into car finance in Britain and has concluded that more than 560,000 consumers were paying 50% more on their car finance deals than they need to.
Now experts are claiming the borrowers could be able to claim that money back under a similar type of agreement to PPI claims under the Plevin rules.
The Plevin case held that borrowers who were not informed of excessive commission paid on a policy at the point of sale were mis-sold and eligible for a refund.
Areas of concern
The FCA’s report highlighted two main areas of concern. The first is that car buyers were sold a deal at a higher rate of interest than necessary to maximise commission on the sale and the second is that consumers are being talked into unaffordable deals.
Last year the car subscription service Drover found in research that 28% of motorists reported feeling trapped in unaffordable car finance agreements.
FCA spokesman Jonathan Davidson said: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission payouts for themselves.
“We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments.
This is simply not good enough and we expect firms to review their operations to address our concerns.”
Latest figures show 90% of all new car deals are by personal contract purchases (PCPs).
It is a method of getting a new car without actually buying it as is done under hire purchase.
Instead the customer merely leases the vehicle which has to be returned to the car dealer at the end of the agreement unless the customer makes a so-called balloon payment.
The FCA has criticised the practice whereby car dealerships and finance houses can combine to set the interest rate charged on a deal and have been found to be overcharging by as much as £1,100 a deal – £300 million overall.
It is also concerned with the way in which deals are set up as customers are not being allowed enough time or given enough information to fully understand the contract they are entering into.
Poor assessment of affordability is another area where the regulator wants action to be taken.
The final report has been published on the FCA website and the watchdog has told all lenders or brokers to read it and consider if they need to review or amend the way they do business.
It has also started policy work on possible changes to existing provisions and possible future interventions such as banning some forms of commission.