Can I Claim Compensation for Car Finance Mis-Selling?

A common way people in the UK are able to purchase their vehicles is through car finance agreements. It’s an accessible way to acquire vehicles which explains why over two million cars in the UK are financed. However, in recent years, there have been hundreds of mis-sold car financing packages that have resurfaced. This growing issue has left thousands of consumers in unfair contracts. If you have purchased a car finance agreement in the last six years, then you might want to check if you have been mis-sold. Our eligibility checker for car finance makes it easy to find out if you’re eligible for a claim.

Mis-selling has been rampant in a lot of PCP finance claims, and it’s important to know there are remedies available to those who have fallen victims. PCP claim companies help simplify the process and support victims in reclaiming what they have been owed. 

Common Signs of a Mis-Sold Car Finance Agreement

Determining whether you have been mis-sold can be confusing. Here are the signs you should observe and keep track of:

1. Failure to explain key terms

PCP terms aren’t like common words, so you might find yourself baffled hearing them, moreover understanding what it means. This is why this has become a common mis-selling tactic. Key terms such as mileage restriction, early repayment penalties and balloon payments should be thoroughly discussed, or else it would constitute mis-selling.  

Misleading key terms can paint bias on your decision making.  For example, you were offered a finance deal with low monthly payments. You think it’s affordable and an efficient choice as you’re given flexibility on what to do with the car. Now you decide to trade or purchase outright. Then you will only find out that you’ll be paying a huge balloon payment. This is an example of this specific scenario. The dealer did not inform you about balloon payments, mileage restrictions, or early repayment penalties. 

2. Hidden fees or undisclosed commissions

Undisclosed commission fees are additional fees your dealer charges without transparently informing you. Fees like this will significantly impact the amount you’re paying, and shift the dealer’s priority from your interest, to their personal benefit. The same goes with hidden fees. These can be fees buried in the clauses of your contract, however if not disclosed, you can argue in your claim that it was intentionally hidden to you. 

An example of a mis-selling scenario that included undisclosed commission was the Wrench case, of the Johnson and Wrench v FirstRand Bank, and Hopcroft -v- Close Brothers. Mr. Wrench bought an Audi, and later discovered the car financing received a commission, which was apparently in the contract, but buried intentionally. He wasn’t prior informed there was a commission being made also, which is what made the entire act a mis-selling. 

3. Unsuitable finance deal 

Agreements that don’t fit your financial situation both currently and in the years covered, can lead to financial strain which puts a situation like this an act of mis-selling. Car financing agreements like PCP appear to be affordable but turn out to be even more expensive if they’re not made exactly suited for your financial situation. 

For example, you’re in an entry-level job, and you wanted to get a car so driving to work would be easier. However your low credit score could be a red flag. Your dealer then offers you a deal that has a high interest rate, saying it’s the only one that you can get. Being blindsided by the fact that there are more affordable financing options and deals, which your lender could have informed you of, is a sign of being mis-sold. 

4. High-pressure sales tactics

There are instances where a dealer shows too much aggression over making you sign and this is a red flag you should be aware of. Saying there are time-limited offers can add pressure to your decision making, as you want to ensure you’re able to get a good deal, but also you want to think carefully of whether this deal is the most suitable for you. 

One scenario that happens very often is if your lender makes you deal that’s almost impossible to ignore, such as low monthly payments or freebies, without telling the possible consequences. It could also happen to people who are having a hard time getting approvals from financing companies due to low credit scores. Dealers could make you believe this was the only offer you got, and that if you do not take it, chances are, you won’t be able to get a car through financing. All these can be pressuring, and influence your decision-making. 

Key Eligibility Criteria

Checking whether you are eligible for PCP refund or compensation isn’t so difficult after all. You just have to check these key factors:

1. Misleading or unclear terms

It’s important that a car finance agreement remains transparent at all costs, and it should clearly outline all the fees, rate, and repayment terms, especially as there is an option to buy it outright. For instance, your dealer or lender can intentionally miss on giving you a full breakdown of your total repayment amount including all interest and fees, which constitutes to a lack of full disclosure. This means you can’t trust them as these are important factors that you should have known of before you got to the decision. 

Your agreement may have been mis-sold, following below list:

• Lack of Full Disclosure
• Unexpectedly High Repayments
• Misrepresentation of Interest Rates

2. Unsuitable Agreements

Lenders are responsible for ensuring customers receive finance agreements that are appropriate for them. A customer’s financial situation is very important during a car financing transaction as it will dictate their ability to pay. If your dealer did not assess your financial situation during your agreement, then you may be entitled to a claim. For easier reference, here are situations that indicate an unsuitable finance agreement. 

• An affordability check was not conducted - The lender should have assessed your situation and your ability to make repayments before they approved your loan. 
• High-interest loans despite poor credit - You must have been offered lower-interest alternatives and not harassed to accept higher interest due to poor credit score. 
• Pressure to accept an unaffordable deal - If you were pushed to a financing option that you can’t afford. 

3. Regulatory Violations 

There are strict rules for car finance agreements, which are governed by the Financial Conduct Authority (FCA) and the Consumer Credit Act. All lenders should abide by these regulations, and if they fail to do so, then you have a valid claim. Here are some of the possible violations your lender may commit, which you should be well aware of:

• Failure to explain financial implications - Your lender should explain how the interest is calculated, the risks of missing a payment and any penalties.
• Undisclosed commissions - Discretionary commissions have been banned since 2021. Also, commissions which were undisclosed even before 2021 are still dubbed as a violation. 

4. Hidden costs and Unexpected Fees

A properly disclosed car finance agreement should explain all costs and fees, whether it be paid before, within or at the end of the contract. If there were unexpected costs that you were unaware of at the time of signing, then you may have been mis-sold. These hidden fees can be:

• Excessive early repayment charges - Were you penalised because you wanted to pay your loan off early.
• Additional Administrative fees - Was these administrative fee disclosed upfront?
• Balloon Payments not explained properly - Was the balloon payment explained well to you and are you aware that it’ll be an expensive fee?

How to check your eligibility

1. Review Your Agreement

The first step is to check your car finance contract thoroughly and identify mis-sold PCP finance deals, and its signs such as unclear terms, undisclosed commissions and affordability issues. In case you think you lost your copy of the agreement, then you can request one from your lender. They are legally obligated to provide one upon request.

2. Look for Discrepancies or Unclear Clauses

Once you have your car finance agreement with you then you should thoroughly check it for any possible discrepancies, as it may be buried somewhere in the contract clauses. Review everything down to the smallest fine print. What’s crucial here, is to find any proof that you were mis-sold and that details were not previously included in your initial agreement. 

3. Gather Evidence

It’s important to collect all relevant documents and proof or correspondence related to your car finance agreement as it will help you in arguing your case to the lender, or the ombudsman. The more evidence you have too, the higher chances your claim will be successful. Evidence includes the following:

• Loan Documents
• Emails, texts and letters of exchange
• Bank statements showing payments made
• Advertisements and promotional materials that influenced your decision
• Timeline of events

Also, if there’s any case where the lender told you some information which appears to be different than the one you have in your contract, then take note of the details of this as well, as this can be important evidence to keep. 

4. Reach out to a Claims Specialist

If you’re not confident on how to proceed, then tapping the help of a professional PCP claims company would be the most ideal decision. These PCP experts specialise in helping individuals who were mis-sold financial products. But also be cautious of claims management companies who might be taking advantage of your situation, charging upfront fees in lieu of a promised win. Instead, find companies that operate on a “no win, no fee’ basis. Typically, a PCP claims specialist can do the following:

• Assess your case and determine your grounds for the claim
• Fix all the paperwork and communicate with lenders on your behalf
• Ensure you receive the maximum compensation

You can also use this eligibility checker to quickly assess whether you need to file a claim.

What to Do If You’re Eligible 

Once you’re able to determine your eligibility for car finance claims, then quickly do the next steps to avoid missing out on any refund or compensation which you may be paid.

1. Submit your Complaint

Once you have gathered all the important evidence needed, then you should file your complaint with the lender immediately. Time is of the essence here. Your lender has typically 8 weeks to respond after your submission. Just ensure that you have the following in your complaint as to prevent possible rejection. 

• Clear statement detailing how you believe you were mis-sold
• Detailed explanation of the scenario
• Copies of supporting evidence including contracts and emails
• Request for refund or the compensation you wish to have

To submit a complaint, go directly to your finance provider’s complaint department, and submit your documents. In case they have a website, an online form, then take advantage of it for convenience. 

2. Seek assistance from a Claims Company

While this step may be optional, it’s mostly recommended given that it’s not common to be an expert in this field. A PCP claims company, like Reclaim247,  is the expert you want to tap, to help you win this case. Claims companies like this one has a group of PCP experts who are knowledgeable in the complexities common with car finance claims. It may be overwhelming at first, but with the right people that will serve as a guide to filing a car finance claim, you’ll be more confident in making your case. 

3. Escalate unresolved complaints to the Financial Ombudsman Service

After eight weeks and your lender still hasn’t responded, then it’s time to move things up to the Financial Ombudsman Service. You can also do this, in case you face a rejection as the FSO is an intermediary between consumers and financial institutions and they can be a huge help to argue your claim. Also, the FOS service is free, and they will investigate independently. A PCP claims company can also help take the stress out of the claims process by managing everything, up to when you are escalating to the ombudsman. 

Conclusion

Many car finance customers were unknowingly charged hidden commissions and excessive interest rates, leading to unfair financial losses. If you took out a PCP or Hire Purchase agreement before 2021, reviewing your contract could help determine whether you were affected.

With the Financial Conduct Authority (FCA) investigation ongoing, consumers may be entitled to compensation for mis-sold finance agreements. Filing a claim early ensures your case is documented and considered for any potential redress schemes.

If you suspect your car finance agreement was mis-sold, checking your eligibility is a crucial first step. Reclaim247 provides assistance in assessing claims and guiding customers through the process. Use the free eligibility checker tool to explore your options.