If you've taken out car finance in the UK within the last 10 years, there's a chance you might have been mis-sold. The Financial Conduct Authority (FCA) has uncovered widespread evidence of irresponsible lending and unfair practices in the car finance market, affecting thousands of consumers. To help you determine if you may have fallen victim to car finance mis-selling, watch out for these five key red flags.
1. Lack of Affordability Checks
One of the most common signs of mis-sold car finance is when the lender or car dealer fails to properly assess your ability to afford the monthly repayments. The FCA requires thorough affordability checks to be carried out before approving a finance deal, including a review of your income, expenditure, and credit file.
If you were not asked for proof of income or questioned about your regular expenses and existing debts, this could indicate that your affordability was not adequately checked. Irresponsible lending that ignores affordability is a breach of FCA regulations and could entitle you to car finance mis-selling compensation.
The importance of proper affordability checks cannot be overstated. Without assessing a borrower's financial situation, lenders risk approving car finance deals that are unsustainable and likely to cause financial hardship. If you find yourself struggling to make your car finance payments or having to cut back on essential expenses to keep up, this is a strong sign that the finance was not appropriate for your circumstances and may have been mis-sold.
2. Unclear or Incomplete Information About the Agreement
Another red flag of mis-sold car finance is when the terms and conditions of the agreement are not fully explained to you. Under the Consumer Credit Act, the lender or car dealership must provide clear and transparent information about the total cost of the finance, including:
- The Annual Percentage Rate (APR)
- Monthly payment amounts
- Length of the agreement
- Any balloon payment or final payment due
- Additional fees and charges
- Your right to withdraw or cancel
If the salesperson glossed over key details, used confusing jargon, or failed to disclose important information about the finance agreement such as payment of commission, you may have been mis-sold. Research shows that many car finance customers feel they were not given clear information or did not fully understand their agreement:
| Statistic | Percentage |
|---|---|
| Car finance customers who felt they were not given clear information about t agreement | 54% |
| Customers who did not fully understand the total cost of their car finance loan | 62% |
It's crucial that you fully understand the terms and total cost of your car finance agreement before signing. If any aspect of the deal is unclear or you feel pressured to sign without adequate explanation, walk away and seek clarification or advice. A reputable lender or car dealership should be transparent about all aspects of the finance and willing to answer any questions you may have.
3. High-Pressure Sales Tactics
Being pressured to sign a car finance agreement without adequate time to review and understand the terms is another warning sign of mis-selling. You should never feel rushed, coerced, or uncomfortable when making a significant financial decision like taking out a car loan.
High-pressure sales tactics to watch out for include:
- Limited-time offers or claiming the deal is only available that day
- Refusing to let you take the agreement home to read thoroughly
- Discouraging you from asking questions or seeking independent advice
- Pressuring you to buy expensive add-ons like GAP insurance
If you experienced any of these high-pressure tactics when arranging your car finance, there's a strong possibility that you were mis-sold. Don't let pushy salespeople rush you into a finance deal that may not be right for you. A responsible lender will give you the time and space needed to carefully consider your options and make an informed decision.
4. Unsuitable or Undisclosed Commission Arrangements
In many cases of mis-sold car finance, the lender and car dealership have a discretionary commission arrangement where the dealer earns higher commission for charging you a higher interest rate. This creates an incentive for the salesperson to push more expensive finance deals, even if they are not the most suitable or affordable for your circumstances.
If you were not informed that the car dealer would receive commission on your finance deal, or if you suspect the commission influenced the rate you were offered, you may have grounds for a mis-selling claim. The FCA estimates that these discretionary commission arrangements have cost consumers £300 million per year in excessive interest charges.
| Statistic | Value |
|---|---|
| Estimated annual cost of discretionary commission to UK car finance consumers | £300 million |
The lack of transparency around commission arrangements in the car finance market is a serious concern. As a consumer, you have the right to know if the person arranging your finance has a financial incentive to sell you a more expensive deal. If this conflict of interest was not disclosed to you, it's possible that you were mis-sold and could be owed compensation.
5. The Total Cost is Higher Than Expected
A major red flag of mis-sold PCP finance or other types of car finance is when the total cost ends up being much higher than you were led to believe. This can happen due to:
- The APR or monthly payments being higher than verbally quoted
- Mileage restrictions and excess mileage charges not being clearly explained
- The final balloon payment being unaffordable
- Negative equity from a previous finance deal being rolled into the new agreement
- Expensive add-on products being included without your knowledge
If you're struggling to keep up with your car finance repayments or have realised the total cost is unmanageable, this is a sign that the finance may have been mis-sold to you based on inaccurate or incomplete information.
| Category | Percentage |
|---|---|
| Monthly payments higher than expected | 48% |
| Total cost of loan higher than expected | 56% |
Unexpectedly high costs are a common issue in mis-sold car finance cases. Many consumers end up paying hundreds or thousands of pounds more than they were initially told, often due to hidden fees, add-ons, or escalating interest charges. If your car finance has ended up being far more expensive than you anticipated, you may have been mis-sold and could be entitled to compensation.
How to Make a Mis-Sold Car Finance Complaint
If any of these mis-selling signs sound familiar, you might be eligible to claim compensation for your mis-sold car finance agreement. Here are the key steps to take:
- Gather evidence – Collect all documentation related to your car finance agreement, including the contract, pre-contractual information, correspondence with the lender, dealer, credit broker, and proof of payments. Having strong evidence and required paperwork is very important to the success of your claim.
- Submit a complaint – Write a formal complaint letter to the lender or car finance company explaining how you believe you were mis-sold and the redress you are seeking. Be sure to include all relevant details and supporting evidence. The company has 8 weeks to provide a final response to your complaint.
- Escalate to the Financial Ombudsman Service – If you are not satisfied with the lender's response or they fail to respond within 8 weeks, you can refer your complaint and any enquiry to the Financial Ombudsman Service (FOS) for an independent review. The FOS will investigate your case and can order the lender to pay compensation if they find in your favour.
- Consider legal action – If your claim is not resolved through the FOS or you wish to pursue court action, seek professional legal advice. Specialist lawyers such as our partners who handle mis-sold financial products can assess the merit of your situation and assist you during the legal proceedings. A lot of them provide representation on a no-win, no-fee basis, eliminating any initial expenses for you.
When making a mis-sold car finance claim, be mindful of the time limits involved. You typically have 6 years from the date of the agreement (or 3 years from when you discovered the mis-selling) to make a claim. However, it's best to act as soon as possible while the evidence is readily available.
If you're unsure about your eligibility for a mis-selling claim or need assistance with the claims process, consider contacting a financial claims management company or solicitor who specialises in mis-sold car finance. They can provide expert advice and support to help you recover the compensation you deserve.
What is FCA's Ban on Discretionary Commission in Car Finance?
In January 2021, the Financial Conduct Authority (FCA) implemented a ban on discretionary commission models in the car finance market which is known as fca's ban. This significant regulatory change aimed to protect consumers and promote fair treatment by lenders and dealerships.
Under discretionary commission arrangements, car dealers and finance brokers could earn higher commissions by charging customers higher interest rates. This created a clear conflict of interest, incentivising salespeople to push more expensive finance deals, even if they weren't the most suitable or affordable for the borrower.
The FCA (Financial services) found that discretionary commission models were causing consumer harm, with many customers paying significantly more for their car finance than they needed to. It estimated that the ban could save consumers £165 million a year in lower interest charges.
Since the ban came into effect, all car finance commission arrangements must be non-discretionary. This means that the amount of commission earned by the dealer or broker cannot be linked to the interest rate or other charges paid by the customer. Instead, commissions must be based on fixed fees or a percentage of the loan amount, regardless of the interest rate.
The FCA's ban is a positive step towards a fairer and more transparent car finance market. It helps ensure that customers are offered competitive and appropriate finance deals, rather than being steered towards more expensive options that primarily benefit the salesperson. If you took out car finance before January 2021 and believe you may have been mis-sold due to discretionary commission, you could be entitled to compensation.
Against which lenders can I file a claim for mis-sold PCP finance?
If you have been a victim of mis-sold PCP finance, you have the right to make a claim against any car manufacturer or dealership that provided you with the finance agreement. This applies to well-known brands like Audi, BMW, Ford, Mercedes-Benz, and Volkswagen. Mis-selling of PCP finance can occur when important information is not disclosed, or if the terms and conditions are unclear, leading consumers into agreements that may not be suitable for their financial situation. By seeking compensation for mis-sold PCP finance, you can protect your rights as a consumer and potentially recover any financial losses incurred due to unfair practices. It's essential to be aware of your rights and take action if you believe you have been misled or treated unfairly in a PCP finance agreement with any car maker or dealership.
How Far Back Can I Make a PCP Claim?
If you believe you were mis-sold PCP (Personal Contract Purchase) car finance, it's important to know the time limits for making a claim. Under UK law, you have six years from the date of the finance agreement to pursue a mis-selling complaint.
However, there is an exception to this rule. If you only discovered that you were mis-sold PCP car finance within the last three years (even if the agreement was taken out more than six years ago), you have three years from the "date of knowledge" to make a claim.
For example, let's say you took out a PCP agreement in 2014 but only realised in 2021 that the deal was mis-sold to you. In this case, you would have until 2024 (three years from the date of knowledge) to submit a mis-selling complaint, even though more than six years have elapsed since the original finance provider agreement.
It's important to act promptly if you suspect mis-selling, as gathering evidence can become more difficult over time. If you're unsure about your eligibility to claim based on the age of your PCP agreement, it's best to seek professional advice from a claims management company or solicitor specialising in mis-sold car finance.
Types of Car Finance Eligible for Mis-Selling Claims
If you've been mis-sold car finance in the UK, you may be entitled to compensation. Mis-selling can occur with any type of car finance agreement, including Hire Purchase (HP), Personal Contract Purchase (PCP), Personal Contract Hire (PCH), Conditional Sale, and Personal Loans.
Hire Purchase (HP)
Hire Purchase is a type of secured loan where you spread the cost of the new car over an agreed period, usually between 1-5 years. You make fixed monthly payments, which include interest, until you've paid off the full amount. At the end of the term, you own the car outright.
HP agreements can be mis-sold if the lender fails to properly assess your affordability, doesn't clearly explain the terms and total cost, or uses high-pressure sales tactics to rush you into signing.
Personal Contract Purchase (PCP)
PCP is similar to HP in that you make monthly payments over a set term. However, the monthly instalments are generally lower because you're not paying off the full value of the car. Instead, you're paying off the depreciation (the difference between the car's initial price and its expected value at the end of the term).
At the end of the agreement, you have three options: make a larger "balloon payment" to own the car, return the vehicle, or trade it in for a new one. PCP deals can be complex and are often mis-sold when the terms, mileage restrictions, and final payment are not clearly explained.
Personal Contract Hire (PCH)
Also known as car leasing, PCH involves renting a vehicle for a fixed period (usually 2-4 years) and mileage limit. You make set monthly payments, but never own the car. At the end of the term, you simply return the vehicle.
PCH agreements can be mis-sold if the contract terms, mileage limits, and excess charges are not transparently disclosed, or if you're pressured into a deal that's not suitable for your needs and budget.
Conditional Sale
Conditional Sale is another form of secured car finance. You pay a deposit and make fixed monthly payments, with interest, over an agreed term. You don't own the vehicle until you've made the final payment.
Like other types of car finance, Conditional Sale agreements can be mis-sold when the lender doesn't conduct proper affordability checks, fails to clearly explain the terms and total cost, or misrepresents the deal.
Personal Loans
Personal Loans are unsecured loans that can be used to purchase a car. You borrow a fixed amount, which you repay (plus interest) in set monthly instalments over an agreed term. You own the car from the outset.
While Personal Loans are generally simpler than the other types of car finance, they can still be mis-sold. Examples include the lender not properly assessing affordability, hiding the true cost of the loan, or pushing you to borrow more than you need.
Mis-Sold Car Finance FAQs
How much compensation will I get for a mis-sold car finance claim?
The exact amount of compensation you could receive for mis-sold car finance will depend on your individual circumstances, such as the amount of money you borrowed, the type of finance agreement, and the severity of the mis-selling. Compensation can range from hundreds to thousands of pounds, with the average claim being around £4,000.
Can I claim for mis-sold car finance if I'm still paying the agreement?
Yes, you can make a mis-selling claim even if you are still making payments on the car finance agreement. In fact, if you are struggling with unaffordable monthly payments, this could be a sign that the finance was mis-sold to you and strengthen your case for compensation.
Will claiming for mis-sold car finance affect my credit score?
No, making a complaint about mis-sold car finance will not impact your credit rating. Your credit file does not include information about any complaints you make or their outcomes. However, if you stop making payments on your finance agreement, this could negatively affect your credit score.
Can I claim mis-sold car finance compensation if I have bad credit?
Yes, you can still claim compensation for mis-sold car finance even if you have a poor credit history. The lender had a responsibility to properly assess the affordability and suitability of the finance agreement for your circumstances, regardless of your credit score.
How long does a car finance mis-selling claim take?
The length of time it takes to resolve a mis-sold car finance claim can vary depending on the complexity of the case and whether the lender accepts fault. Most complaints are resolved within 8-12 weeks, but cases that require escalation to the Financial Ombudsman Service or court action may take several months. Your claims handler will keep you updated on the progress of your case.
References
- [1] www.fca.org.uk
- [2] www.nacfb.org
