It wasn’t that long ago that the media was full of stories about the mis-selling of PPI, with banks being the prime targets for vitriol and blame (with good reason, some would say).

Now, the PPI scandal has gone quiet and many of the legal firms that were ‘only too happy to help’ (for a 30% fee) are now idly twiddling their thumbs, looking for the next big scandal. Could PCP finance be that scandal?


Financial Conduct Authority

There is of course a little more to the headline. It’s actually the Financial Conduct Authority (FCA) that has started investigating whether there is a case to answer.

The UK car finance industry is worth approximately £40 billion, second only to property mortgages. That makes it big business and, just as in the world of property, close scrutiny has revealed a number of issues that potentially need addressing. One of those is Personal Contract Plan (PCP) finance.

We should point out that there is nothing wrong with PCP financing when done responsibly – it’s a great way of being able to afford a new car without having to pay to own it outright and the monthly payments are usually significantly less than a traditional loan or hire purchase agreement.

This is because the value of the car is taken into account when the payments are calculated. As the car will still have a value at the end of the agreement (unless it is written off), this value can be used as the final payment; you won’t actually own the car.


PCP versus hire purchase

The mis-selling time bomb relates mainly to the fact that many PCP contracts may have been sold without full explanations of interest rates, either through deliberate mis-information or ignorance. Neither of those excuses will stand up in a court of law.

There is also an element of massaging the final valuation of the car, which leads the purchaser to believe there will be ‘profit’ at the end of the agreement, though in all honesty that’s a smaller issue.


According to the National Association of Commercial Finance Brokers, there were approximately one million PCP agreements made last year. There are no statistics (yet) to tell us how many of those may be subject to a mis-selling investigation, but even if that figure is as low as 10%, that’s still a huge number of people affected.

The crux of the matter is really rather simple: were people told that they would end up paying more interest through a PCP agreement than they would through a traditional hire purchase agreement? Or that the ‘value’ of the car would be more than the actual value of the car?


Have you been affected?

At present, there is little to be done if you find yourself in that situation. However, understanding your agreement and figures involved could be an essential part of making a successful claim against your broker.

Our advice is to keep checking back here for updates to the situation. In in the meantime, revisit your paperwork and try to get an understanding of whether you could be affected by this type of mis-selling.

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