For most people, buying a car is the second largest purchase they will make, after their home.
As a consequence, it is quite normal for the purchase to involve some level of finance.
There are quite a number of different finance options available (such as Personal Contract Purchase or Hire Purchase), but nearly all will involve some level of interest being paid on the amount borrowed.
There are strict regulatory rules in place surrounding the charging of interest and some finance lenders have breached those rules.
What exactly have some firms done wrong?
When you buy a car from a dealership, it will likely offer you some finance options. That finance is provided by a number of different lenders, some very well known (like Barclays and Santander) and some not so well known. The lenders pay the car dealer a commission for selling their particular loan. As you can imagine, it is a very competitive market.
In order to push themselves to the front of the pack, some finance lenders allowed car dealerships to increase the rate of interest on the car loan in return for earning a higher rate of commission. These became known as “Discretionary Commission Arrangements (DCA)”.
The Financial Conduct Authority (the finance industry regulator) found out about this practice and duly banned it in January 2021, as being very unfair to consumers and thus a breach of regulatory rules.
But before the ban, it is estimated about 40% of car finance lending involved a DCA. In other words, the car dealership received more commission, the lender received more interest, and the car buyer lost out.
It was a totally unfair practice as consumers were not told that a “sweetheart” deal between car seller and lender would mean they had to pay more for the car. Most people were told the loan was a fixed price deal and not negotiable; and they were not told that they could buy the same car from another dealer for the same price but at a lower level of interest.
Will you have been affected?
If you took out a car loan between 6 April 2007 and 28 January 2021, there is a 40% chance your loan was of the “Discretionary Commission Arrangement” type.
This means you will almost certainly have paid more interest on your loan than you should have done, perhaps thousands of pounds more.
However, it is very difficult to tell from the loan paperwork if your loan was the DCA type. Instead, it is necessary to investigate this with the lender in each case.
What type of loans were potentially of the DCA type?
If you bought your car through a Personal Contract Purchase agreement or Hire Purchase agreement, it could have been on a DCA basis.
Personal Contract Purchase (PCP) deals vary a little in structure, but basically you make a down payment to secure the car, then you pay monthly over 36 or 48 months and at the end of the agreement there will be a final lump sum to pay to buy the car, if you want to do that. If not, you simply hand the car back and either walk away or use the trade in value as a deposit for another new car on another PCP deal.
Hire Purchase (HP) is a little different. Here the full cost of the purchase is split into monthly repayments over a fixed term, again usually 36 or 48 months. At the end of the term, the car is yours.
So if you bought you car with a PCP or HP agreement, it is definitely worth finding out if it was on DCA terms.
What finance arrangements are not of concern?
If you bought the car on a lease (also known as Personal Contract Higher) then this is not within the scope of the mis-selling issue.
Also, if your loan had a 0% interest rate (ie. you paid no interest at all, but just paid back the amount borrowed) then it won’t have been on DCA terms.
You won’t be able to claim mis-selling if the loan was to buy a car for primarily business use. (But you can claim if the loan was provided to a business to buy a car that would be used primarily for personal use and the loan was under £25,000.)
What if you no longer have any paperwork for the loan?
This can be recovered from the lender using the “Right to Access” provisions within the Data Protection Act 2018.
However, if the loan was repaid more than 6 years ago, you may not be able to recover a copy from the lender any more. They are only required to keep paperwork for 6 years after an agreement ends, but do check with your lender anyway as many do keep documentation for much longer than the minimum period set in law.
If you cannot remember which lender gave you the loan, order a copy of your Credit Report from Experian or Equifax. If the loan was active within the last 6 years, the lender’s name should be recorded.
Or try going through old bank statements to find the name of the firm taking your direct debit payment each month.
What if you no longer have the car and/or loan?
It does not matter if the loan has already been paid off, for whatever reason (i.e. you reached the end of the term; or sold the car etc).
You should still consider if you were the victim of mis-selling, as you may have paid thousands in extra interest.
What if the finance lender and/or car dealer is no longer in business?
It makes no difference if the car dealer is no longer trading. The loan terms were the responsibility of the lender.
If the lender itself has gone out of business, unfortunately it is unlikely you will be able to claim any money back.
If you think you could benefit from expert advice, then I’m here to help.
Contact Greg Vaughan Financial Services
Please feel free to use the Contact Form, send an email or telephone – whichever you feel most comfortable with.
Online: please use the Contact Form or email greg@pension-claims.com
Over the phone: Call Greg on 0151 329 0775 or 07788 630037
