If you have ever bought a car in the United Kingdom, it is likely that you purchased it using a PCP (Personal Contract Purchase) arrangement. PCP is a financial product that involves the payment of an initial deposit, followed by fixed monthly contributions over a set term, typically between two to four years. These instalments cover the depreciation of the car’s value during the contract period.
At the conclusion of the term, the borrower faces a ‘balloon payment’ — a substantial final sum — if they wish to own the vehicle. Alternatively, they can return the car or use any equity as a deposit towards a new PCP agreement.
Despite its popularity, PCP agreements have recently come under scrutiny, in what has become known as the PCP scandal. The issue involves the mis-selling of car finance contracts where consumers were unknowingly charged higher interest rates due to undisclosed commission arrangements between lenders and brokers or car dealers.
These discretionary commission agreements (DCAs) allowed brokers to increase interest rates to receive higher commissions, leading to consumers overpaying for their car.
In January 2021, the Financial Conduct Authority (FCA) banned such commission models to enhance transparency and protect consumers. Subsequently, the FCA launched an investigation into the extent of this mis-selling, with findings expected by May 2025. This controversy has drawn comparisons to the Payment Protection Insurance (PPI) mis-selling debacle, with potential compensation payouts estimated to be substantial.
If you suspect you might have been mis-sold a PCP agreement, this step-by-step checklist will help you assess whether you have grounds for a claim.
1. Review Your PCP Agreement
Obtain a copy of your contract and review it carefully. Look for any clauses or terms you don’t understand and ensure you identify the total cost of the agreement, including interest rates and the optional final payment.
2. Assess Affordability Checks
When purchasing a vehicle, it’s easy to become so enthusiastic that we overlook the financial implications of the acquisition. This is why sellers are mandated to conduct affordability checks to ensure the finance agreement is suitable for the buyer’s financial situation. Reflect on whether you were asked to provide proof of income or expenditure during your purchase.
Evaluate if the salesperson took steps to confirm that the agreement was affordable for you. If no affordability checks were performed, this oversight could strengthen your claim, as it may indicate irresponsible lending practices.
3. Examine How the Agreement Was Presented
Consider if all financing options were explained to you. Reflect on whether you felt pressured to choose a PCP agreement. Additionally, assess if the terms, such as mileage limits and end-of-contract fees, were clearly explained.
4. Investigate Misleading Practices
If at any point you were led to believe that the car would be yours at the end of the agreement, you were likely misled. Consider whether the salesperson gave you the impression that ownership was guaranteed or made promises about benefits not explicitly stated in the contract. Assess if the financial risks, such as the potential for negative equity, were thoroughly explained.
5. Check for Hidden Fees
Examine if there were any undisclosed fees in your agreement, such as early termination charges. Reflect on whether the contract included fees that were not clearly disclosed to you during the sale.
6. Evaluate the Vehicle’s Condition and Value
Think carefully about whether the car’s value was inflated when you purchased it. Was the depreciation rate realistic, or were you led to believe the car would hold its worth far better than it did?
Consider, too, if you were hit with unreasonable charges for wear and tear at the end of the contract—fees that may feel like an afterthought but can cut deeply into your finances. If these practices seem all too familiar, they could point to deliberate misrepresentation
7. Determine Who Advised You
Reflect if the salesperson who guided you was a regulated financial advisor. If they were not, ask yourself how their advice played a role in shaping your decision. When unregulated individuals offer financial guidance, it often blurs the line between helpful suggestions and misleading influence.
8. Document Any Issues
Write down all the problems you’ve encountered with your PCP agreement, ensuring you include as much detail as possible. Maintain a record of any communication with the dealership or finance provider, and gather evidence such as emails, letters, and receipts to support your case.
9. Seek Expert Advice
Contact a solicitor specialising in PCP claims to arrange a free initial consultation. Provide them with all relevant documents and details about your case. The lawyer can help you understand your legal position and guide you on the next steps to take.
The best solicitors often work on a no win, no fee basis, meaning you do not have to pay any legal fees upfront. Instead, they only charge a fee if your claim is successful, making this a risk-free option.
10. Initiate Your Claim
Once you have gathered all the necessary evidence and consulted with a solicitor, the claim process can begin. If you decide to use a lawyer, they will prepare and submit a formal complaint to the finance provider or lender, clearly outlining the mis-selling issues and requesting appropriate compensation.
The legal experts will handle all negotiations with the finance provider on your behalf, ensuring that your rights and interests are prioritised throughout the process. If necessary, your legal firm will escalate the matter to the Financial Ombudsman Service or initiate legal proceedings to secure a fair resolution.
Taking the time to understand the details of your PCP agreement and addressing any signs of mis-selling is about more than merely reclaiming financial losses; it’s about ensuring fairness and transparency in an often opaque system. With the right professional support and by following this checklist, you will navigate the complexities of this process with confidence.