PCP Claims Background
PCP Claims are derived from Personal Contract Purchase, or PCP for short, which is simply a form of finance that allows you to borrow and use a car from a finance company. You'll be asked to pay an initial deposit followed by monthly payments for a set period, usually anywhere between 18 and 48 months, although 36 months is typical. The higher the deposit paid, the lower the monthly payments will be.
PCP is similar to Hire Purchase (HP) with one major difference. Instead of paying off the entire value of the car in monthly instalments, as you would with an HP deal, with PCP you're only paying off the depreciation. In other words, all you pay is the difference between what the car's worth at the start of the agreement and what the dealer says it'll be worth at the end. This is often known as its "guaranteed minimum future value".
PCP Claims against the lending company
As you're effectively only renting the car from the finance company, you don't own the vehicle while you're making your monthly payments. You also won't automatically own the vehicle at the end of the payment term, unlike with an HP deal. The options are, you can keep it, exchange it, or return it.
If you do decide you want to keep the car at the end of the agreement, you'll need to make what's known as a "balloon" payment. This will cover the cost of the vehicle, and it's this payment that transfers ownership from the finance company to you.
The FCA Final Report on the Motor Finance Sector and PCP Claims
In March 2019 the Financial Conduct Authority (“FCA”) published the final findings of its review of the motor finance sector (“FCA Review Findings”). It followed widespread anecdotal reports of highly questionable incentive structures in the sector and of the aggressive marketing of “PCP” (personal contract purchase) plans to customers. This was the initial catalyst for PCP Claims.
The FCA Review Findings reports that:
“The way commission arrangements are operating in motor finance may be leading to consumer harm on a potentially significant scale”, thus enabling PCP Claims.
“Some customers are paying significantly more for their motor finance because of the way lenders choose to remunerate their brokers”;
“Across the firms in our analysis (around 60% of the market) we estimate that commission models which allow broker discretion over the interest rate [payable by the customer] could be costing customers £300m more annually when compared against a baseline of Flat Fee models”;
“We estimate that on a typical motor finance agreement of £10,000, higher broker commission under the Reducing DiC model can result in the customer paying around £1,100 more in interest charges over the four-year term of the agreement.”
PCP Claims are based on the fact that:
Large parts of the motor finance sector had commission models in which brokers and finance intermediaries were remunerated proportionately to the rates of interest paid by customers;
As those rates were in most cases being set (within parameters) by the brokers/finance intermediaries there was a strong incentive to increase the interest rates being offered to customers;
As statistical analysis confirms, the ensuing interest rates charged to customers were higher than can be justified by (for example) differential risk reflected by credit scores. All these ideas lead to the conclusion that PCP Claims are viable against the dealer or lenders.
Can I make a PCP Claim for compensation for mis-sold car finance?
Did you enter into a PCP Agreement? If so, you may have been overcharged by the lender.
PCPs are simply interest-only loans, and the interest can be more expensive than planned.
If you think that your PCP wasn’t clearly explained to you when you agreed to buy the car, then this may indicate there are grounds for making a PCP mis-selling claim.
The following is a list of circumstances that may suggest you were mis sold and should look into PCP Claims in more depth.
The car showroom salesperson didn’t explain the finance deal to you clearly
The salesperson didn’t explain the interest charges well enough for you to understand
The car dealership didn’t outline who owns the car (i.e not you)
It wasn’t made clear who has to pay for any repairs to the car, or wear and tear
You weren’t presented with any alternative options
If you want to know more about PCP Claims, just get in touch.