Drivers Overcharged by £1,100 on Average in Car Finance Scandal
A major car finance scandal has left UK drivers out of pocket, with lenders overcharging on personal contract purchase (PCP) and hire purchase (HP) agreements. According to the Financial Conduct Authority (FCA), some car finance providers engaged in unfair commission practices, inflating interest rates to boost their earnings. As a result, drivers who took out car finance deals before 2021 could be eligible for compensation.
How Did This Happen?
Car dealerships and finance brokers often earned commission based on the interest rate they set for customers. The higher the interest rate, the more they made. This incentive structure led to widespread mis-selling, with some drivers paying thousands more than they should have. The FCA banned these discretionary commissions in 2021, but millions of drivers had already been affected.
Key Findings:
- The average overcharge per driver is estimated at £1,100, according to consumer watchdogs.
- Over 8 million car finance agreements could be impacted by this scandal.
- The FCA is reviewing complaints, and a redress scheme could be introduced in 2024.
Am I Owed Compensation?
If you took out a PCP or HP agreement before 2021, you could have been overcharged. The key signs include high interest rates, unclear commission details, and being misled about costs. Even if your agreement has ended, you might still be eligible for a refund.
Steps to check if you’re owed money:
- Review your finance contract – Look for any mention of commissions or discretionary rates.
- Check your payments – Compare your interest rate with market averages at the time.
- Contact your lender – Ask if a commission was applied and request details in writing.
How to Make a Claim
If you believe you were mis-sold car finance, you can take action now. The first step is to complain directly to your lender. If they reject your claim or fail to respond within eight weeks, you can escalate the case to the Financial Ombudsman Service (FOS) for free. Legal firms are also offering no-win, no-fee services, but be cautious about fees if you win.
For those unsure where to begin, using a PCP claims checker can help identify if you’re eligible for a refund. These online tools quickly analyse your agreement and flag potential mis-selling issues.
What Happens Next?
The FCA is under pressure to introduce a compensation scheme similar to the PPI scandal, which saw billions paid out to UK consumers. If a redress scheme is confirmed, lenders will be required to refund affected customers automatically. Until then, making a claim independently remains the best option.
What You Should Do Now:
- Gather all your car finance documents and statements.
- Contact your lender to ask about any commission applied to your deal.
- Consider making a claim through the FOS if you suspect you were mis-sold.
With millions potentially owed compensation, it’s crucial for drivers to check their finance agreements now. Don’t wait for a formal scheme to be introduced—act today to reclaim what could be rightfully yours.
