How PCP Car Finance is Mis-sold
Understanding Discretionary Commission Arrangements and how they affected consumers
PCP (Personal Contract Purchase) car finance may have been mis-sold if you were not properly informed about the commission arrangements between the car dealer and the finance lender. The primary concern relates to Discretionary Commission Arrangements (DCAs), which the Financial Conduct Authority (FCA) banned in January 2021.
Understanding Discretionary Commission Arrangements
Discretionary Commission Arrangements (DCAs) were agreements between lenders and car dealers that allowed the dealer to influence the interest rate on your car finance:
The lender would set a minimum interest rate — the base rate they were willing to offer.
The dealer had discretion to increase this rate — they could add percentage points on top.
The higher the rate, the more commission — dealers earned more by charging you more.
Consumers were not told — in many cases, you had no idea this was happening.
The Conflict of Interest
DCAs created a clear conflict of interest. The dealer had a financial incentive to charge you a higher interest rate, even if you would have qualified for a lower rate:
You may have paid more interest than necessary — potentially thousands of pounds over the agreement.
The dealer benefited financially — from increasing your costs, not helping you.
You weren't given the opportunity — to make an informed decision about your finance.
How DCAs Affected Consumers
Research and regulatory findings suggest that DCAs had a significant impact:
FCA estimate of total redress to consumers
Estimated average compensation per affected agreement
These figures are estimates and individual amounts will vary based on specific circumstances.
Other Forms of PCP Mis-selling
Beyond DCAs, PCP finance may have been mis-sold in other ways:
Lack of Affordability Assessment
Lenders have a responsibility to ensure that finance is affordable for the borrower. If proper affordability checks were not conducted, this could constitute a regulatory breach.
Inadequate Information
You should have been provided with clear information about:
- The total amount payable including interest
- The APR (Annual Percentage Rate)
- Your options at the end of the agreement
- Mileage limits and excess charges
Unsuitable Products
If PCP was not suitable for your circumstances (for example, if HP would have been more appropriate based on your needs), this could also be grounds for a complaint.
The FCA's Response
The FCA has taken significant action in response to concerns about PCP mis-selling:
DCAs Banned
Dealers can no longer increase interest rates to earn more commission.
Investigation Completed
The FCA completed its investigation into how consumers were affected by DCAs.
Consumer Redress Scheme Introduced
The FCA has introduced a consumer redress scheme for efficient compensation.
Why This Matters Now
If you took out PCP car finance between April 2007 and January 2021, you may have been affected by DCAs. The FCA's investigation covers this period, and affected consumers may be entitled to compensation.
Important: Not everyone who took out PCP finance during this period was affected. Whether you have a valid claim depends on your individual circumstances, including whether DCAs were used in your specific agreement and how the finance was sold to you.
Was Your PCP Finance Mis-Sold?
Find out if you're entitled to compensation.