Personal Contract Purchase (PCP) has been the subject of headlines, especially in relation to the rising mis-selling complaints. News reports and consumer rights commonly portray PCP as the poster child for car finance claims. Now, consumers are wondering whether other finance types such as Hire Purchase (HP) and Lease Purchase, are also vulnerable to car finance mis-selling. The answer is a clear yes. Whether it be a PCP, HP, or Lease Purchase Agreement, you can still be made eligible for a claim. 

What Counts as Mis-Selling in Car Finance?

Car Finance mis-selling often occurs brought about by agreements that are not explained properly. It’s either that essential information was hidden or that the product was unsuitable for the customer’s financial situation, and this can all count as mis-selling. The specifics may differ depending on the finance type, but if it’s put unfairly, then it counts as mis-selling still. 

Here are the core Issues you may find across all agreement types:

1. Hidden Commission - Lenders paid large commissions to brokers and dealers, without informing customers that this has caused their costs to rise up. This structure also provoked brokers and dealers to increase the interest rate, therefore increasing their commissions too.
2. Affordability Checks – All car financing agreements are required to conduct affordability checks for repayments. In case these checks are inadequate or worse, skipped entirely, then it can count as a serious compliance issue. 
3. Pressure Selling – Some customers may have been rushed into deals that don’t fit them, and they agreed because they weren’t offered any other finance deal

Failure to abide by the basic rules can put you under the Financial Conduct Authority or FCA's investigation. 

Overview of Finance Types and Mis-Selling Risks

There are different car-finance types and different mis-selling risks that fall into each category, and here we’ll run a quick purview:

1. Personal Contract Purchase (PCP)

What makes PCP car finance agreements different from other types of car financing is that it involve monthly payments, but only for the car’s depreciation value. It also has an optional balloon payment at the end, for when you choose to buy the car outright. In this agreement, customers can choose to return the car, trade it in or pay the final value if they want to take the car home fully. Here are the common mis-selling risks:

• Balloon payment is not properly explained
• Overstating resale values
• Not disclosing commission
• Not explaining properly the mileage limit and excess fees

2. Hire Purchase (HP)

HP agreements have fixed monthly amounts and their end goal is to also own the car outright. The cost is simply spread over the full value of the vehicle, and its mis-selling risks include:

• Undisclosed commission fees that affect interest rates
• Not conducting affordability checks
• Misleading interest rates of terms
• There’s pressure put on consumers to sign the contract even without understanding it

3. Lease Purchase

The difference between Lease Purchase and PCP is that with the latter, buying the car is mandatory. Here are the common tactics used in mis-selling lease purchase:

• The broker did not mention that the balloon payment was necessary
• The total payable amount wasn’t disclosed fully
• There was a misrepresentation of the contract, as a standard lease or PCP

In most cases, lenders are in denial of their faulty actions, as regardless of what car financing it is, it may end up with them having to refund or pay out to consumers. Now, what happens if my car finance company refuses to cooperate with the ombudsman? Typically, the Ombudsman can continue investigating the claim even without the company’s support. Also, not cooperating will entail legal issues for the finance provider. 

How the FCA and FOS View Different Agreements

Regarding these different types of agreements, the Financial Conduct Authority remains neutral, as regardless of the finance type, it all comes under consumer credit regulation. Meanwhile, the FCA has already expressed its dismay about the system that occurred with Discretionary Commissionary Arrangements (DCA), causing them to ban them fully since 2021. Seeing how it led to consumer harm, the FCA has started its review on whether consumers are entitled to receive compensation. 

The FOS, or the Financial Ombudsman Service, a legal entity that resolves complaints between financial businesses and their customers, and focuses on Hire Purchase, however, has seen an increasing number of mis-selling complaints, too, brought about by hidden commissions, being blindsided by the agreement, and inaccurate financial checks. 

What Makes HP/Lease Purchase Claims Strong?

PCP has been dominating the headlines and has been the subject of mis-selling issues but what many may not be aware of is that what holds stronger ground are HP and Lease Purchase Agreements, especially if it shows the following red flags:

Undisclosed Commission Arrangements

With HP and Lease Purchase, there’s a common notion to intentionally not disclose the interest rate being applied, as it would allow the broker or lender to inflate excessively, ballooning their commissions in the process. This act automatically qualifies as a mis-selling tactic, and if your agreement has undisclosed commission, then you may be eligible for a claim. 

Incomplete or Misleading Contract Terms

Most mis-selling claims in HP and Lease Purchases are due to being misled into information that isn’t true at all, such as being told you could return the car at the end, like in a PCP, and not knowing the huge final payment is mandatory. If you were led to believe falsely, then time to push your claim. 

Balloon Payments

Although balloon payments are more common with PCP agreements, Lease Purchase Agreements also have them. In this case, they are not optional but mandatory, which all people who availed their car through Lease Purchase should know. If you were misled into thinking this wasn’t necessary, then that’s already a red flag. 

Inadequate Affordability Checks

Lenders must be able to know whether you can afford a loan, because if not, chances are you won’t be able to pay it, or you will be forced to refinance it, only adding more to your payables. If you were approved even with poor credit or low income, then this could signify a regulatory breach. 

Eligibility Checklist by Finance Type

To make it more comprehensive, here’s a simple checklist you can use to know whether you’ve been issued a mis-sold HP car finance or any other financing type.

For PCP:

• Were you told about the balloon payment?
• Was the commission disclosed?
• Were all options at the end of the term made clear to you?

For HP:

• Were interest rates explained clearly to you?
• Was there an added commission that you were not informed about?
• Did paying the monthly dues strain your finances or affect your financial standing?
• Were you forced into a deal without being offered an alternative?

For Lease Purchase:

• Did you know that this involves owning the car at the end of the term?
• Were you aware of the balloon payment?
• Were you told that you could return the vehicle too?
• Was the agreement misrepresented as a lease?

Conclusion

Making a claim isn’t only limited to a Personal Contract Purchase. PCP commands attention, but Hire Purchase and Lease Purchase agreements carry their own risks too, which is what makes it a vulnerable option, and so if you availed a car through any of these, it’s a must to check as early as now for any red flags. Also, mis-selling is about how the product was sold, not just what type of finance it was.

If you’re looking for an expert to help you out, Reclaim247 is knowledgeable in making claim, regardless of whether it’s a PCP, HP, or a Lease Purchase.