What is Mis-Sold Car Finance?

The rise in mis-sold car finance claims, especially around Discretionary Commission Arrangements (DCAs) and Personal Contract Purchase (PCP) agreements, has revealed widespread mis-selling in the UK car finance industry. Many consumers financed their cars through lenders like MotoNovo, Black Horse, Close Brothers, Barclays, and Santander. Now, they question whether undisclosed DCAs misled them, causing unfair and inflated interest rates. This guide explains what mis-sold PCP involves, expected average payouts, and how affected consumers can seek compensation.

Mis-sold car finance describes finance agreements where lenders failed to explain essential details, especially about interest rates and commissions. DCAs are a primary issue, allowing lenders to let dealers raise interest rates in return for higher commissions. This often forces consumers to pay more than they would in a straightforward finance agreement. Industry research shows car finance DCAs may have affected around 40% of PCP agreements signed before 2021 regulations. This suggests millions may have unknowingly overpaid. Read on to discover more about average payouts for mis-sold car finance claims.

How to Identify Mis-Sold PCP Agreements

To identify a potential mis-sold PCP agreement, consider whether:

• Interest Rates: The interest rate was higher than anticipated or seemed inflated with little explanation.
• Transparency: The dealer or lender did not fully disclose commission earnings that influenced your loan rate.
• Misleading Information: There were misleading or unclear explanations about total repayment costs, particularly concerning ‘balloon payments’ at the end of PCP agreements.

The 2014 Plevin v Paragon Personal Finance case set a precedent for mis-selling claims by ruling that undisclosed commission structures could render a financial agreement unfair under the Consumer Credit Act. This decision, initially applied to Payment Protection Insurance (PPI) cases, has since influenced the grounds for car finance claims.

Car Finance Discretionary Commission Arrangements (DCAs)

MotoNovo, Black Horse, Barclays, Santander, and Close Brothers played a central role in these claims by allowing discretionary commission models. Before regulatory changes in 2021, these models often lacked transparency and enabled dealers to raise commissions at consumers’ expense. After the Financial Conduct Authority (FCA) banned this model, more consumers began questioning their agreements and seeking redress.

Average Payouts for Mis-Sold Car Finance Claims

The FCA’s regulatory changes allow affected consumers to claim average refunds of £1,000 to £1,100 per PCP agreement. Actual amounts vary depending on loan size, interest rate difference, and loan duration. In 2024, Lloyds Banking Group allocated £450 million to cover compensation claims, highlighting the scale of car finance mis-selling.

These payouts not only reflect overpaid interest but also cover any additional charges resulting from undisclosed commission agreements. For those who suspect they were affected, take our mis-sold car finance survey and lodge your complaint today.

Steps to Claim Mis-Sold PCP Compensation

If you believe you have been mis-sold a PCP or HP finance deal, complete our free car finance compensation check to see if you have grounds to claim.

• Check. Complete our car finance compensation check.
• Review. We assess claims to determine their validity. This includes checking if charges were unfair or if you were misled.
• Negotiate. One of our Legal Panel firms will process and negotiate your claim.
• Compensation. If successful, you could receive compensation for the overpaid amounts and potentially additional damages.

Read our guide to mis-sold PCP.

Legal Precedents and the Role of the FCA

The FCA began investigating motor finance mis-selling in 2017, particularly PCP agreements, due to rising complaints about inflated interest rates and hidden commissions. By January 2021, the FCA enforced rules to ban car finance DCAs, emphasising consumer transparency. However, while new agreements must comply with stricter transparency standards, historical mis-selling issues remain unresolved for many consumers, potentially leading to billions of pounds in compensation claims.

The FCA’s delayed review of past claims is now expected to finish in December 2025. This review likely will reveal more about the extent of mis-selling. As awareness increases, more car buyers are likely to come forward. Some analysts predict the need for a redress scheme, similar to the one for the PPI scandal, to address these cases comprehensively.

Key Takeaways

For those impacted by mis-sold car finance:

• Discretionary Commission Concerns: Claims involving lenders such as MotoNovo, Black Horse, Close Brothers, Barclays, and Santander often focus on DCA structures that inflated costs unfairly.
• Potential Payouts: Average compensation could be around £1,100, though actual amounts depend on the specific loan conditions and the duration of the finance agreement.
• FCA Guidance: Regulatory action has banned discretionary commissions in new agreements, but historical issues remain, and claims related to older agreements are likely to rise.

For those pursuing compensation, resources like mis-sold car finance calculators can be valuable for understanding potential refunds. Working with a trusted claims company can also help streamline the process, ensuring a higher chance of a fair resolution. With compensation potentially in the billions, the mis-sold car finance issue is far from over, and affected consumers are encouraged to review their options and claim rightful compensation.

Submit your claim today with our free, no-obligation compensation check to recoup your losses and obtain the compensation you deserve.