Mis-sold Personal Contract Purchases Will be Most Complained about Financial Service by 2024

Complaints to the Financial Ombudsman Service about Personal Contract Purchases are likely to eclipse, for the first time, those concerning current accounts, by the first quarter of 2024, according to national law company Legal UK Services.

In the last financial year, complaints about motor finance deals rose from 6,128 to 11.446. Legal Services UK believes this figure will increase to more than 20,000, this year. Personal Contract Purchases (PCPs) – where a customer makes regular payments for a vehicle over several years and can opt to buy it outright at the end of the term or hand it back – account for 90% of UK car finance deals.

“Our prediction is based on the current trend, and the fact that millions of motorists are likely to have been affected by PCP mis-selling but are only just starting to be aware of the issue,” says Legal UK Services’ Legal Director, Elaine Walker. “Current accounts are also becoming more transparent.”

Though PCPs can be a tempting way to own a luxurious car that you couldn’t afford to buy outright or via other credit agreements, they are frequently mis-sold. The reasons can include:

• A lack of proper checks by a car dealer or finance company that a customer can afford a deal.

• Car salespeople earning commissions on PCPs without the buyer’s knowledge or in a way that increases the cost of a PCP. The Financial Conduct Authority recently banned commissions for dealers and finance brokers that are linked to customers’ interest rates and so incentivise selling more expensive credit.

• Misleading or unclear paperwork. This can make it hard for customers to understand what they are signing up for, their rights and obligations and how to make a complaint.

• Customers are usually libel for damage to vehicles at the end of a PCP term and can be charged excessive repair costs.

• Lack of transparency that customers have a mileage limit and will be charged for any excess.

• Inappropriate add-on insurance policies for things like hubcaps, alloys and windscreens

• The balloon payment to buy the car outright at the end of the PCP term is far higher than consumers expected.

The Financial Conduct Authority has estimated that PCP claims could add up to more than £10 billion. This is based on an estimated overpayment of £1,100 per customer.

But car finance is the second largest household expense behind mortgages and Elaine Walker says £10 billion is a very conservative estimate.

Around £50 billion of UK consumer debt is locked up in car finance. “As more and more people become aware of the real PCP terms and conditions and the likes of unfair early termination fees, mileage limits and secret commissions, this will become a huge issue.

“With PCPs still extremely widely used, the full extent of the mis-selling scandal could be bigger than PPI.”

Unlike PPI, there is no formal PCP redress scheme for people to make straight-forward compensation claims, which is why they may need legal assistance.