A clear, comprehensive guide to help drivers understand the patterns behind mis-selling in PCP car finance

Introduction

Most drivers enter a PCP car finance agreement with a fair amount of trust because the whole process feels familiar. The dealership feels professional and well organised. The paperwork appears standard. The conversation moves along in a way that suggests this is just how things are done when you buy a car. Many customers sign, believing that anything important has already been explained and that the deal is safe and regulated.

For a lot of people, the doubts only surface years later. They might hear about the car finance scandal in the news or talk to friends who have started looking into their own car finance claims. That is often when they realise that some details were never discussed properly. The gaps tend to sit around interest rates, commission, balloon payments or mileage limits. These areas are central to many PCP claims across the UK because they affect how customers understand the true cost of their agreement.

A major part of this issue comes from how lenders and brokers handled commission. The Financial Conduct Authority (FCA) considers an unfair relationship to arise when customers were not clearly told about the commercial arrangements between the lender and the dealership. The FCA has identified three main types of undisclosed arrangements that often created unfairness [1]. One is the discretionary commission arrangement, where the dealer could increase the interest rate to earn more. Another is the high commission arrangement, where the commission was a large share of the total cost of credit but was not explained. The third is a tied arrangement, where a dealer said they were searching a panel of lenders but actually had a commercial tie with just one. These practices shaped many PCP car finance agreements entered into between 6 April 2007 and 1 November 2024, which is why the FCA is consulting on a consumer redress scheme [2] for people who may have been affected.

This guide walks you through what a typical mis-sold PCP agreement looks like in everyday language so you can recognise the patterns for yourself. It explains the issues that the FCA has highlighted in a simple, grounded way. The aim is to help you see whether your own agreement shows similar features, without accusing anyone of wrongdoing or making legal claims about your specific case.

The Most Common Mis-Selling Indicators

Mis-selling does not look exactly the same for every person. Even so, many PCP agreements share the same underlying problems. These patterns appear across different brands and lenders and grew out of normal sales practices, not just one-off mistakes.

No explanation about commission

Commission is central to how PCP car finance is priced because it can directly influence the interest rate you are offered. Many drivers are never told this. Some walk away believing that the interest rate is set only by the lender. Others think it is based purely on their credit score. Very few are told that the dealer can earn more commission by setting a higher rate for the customer.

That lack of transparency is one of the key reasons so many people now explore PCP commission claims. They want to understand whether the price they paid reflected a fair deal or a commission-driven decision.

Interest rate not properly explained

The interest rate determines how much your PCP car finance agreement really costs over time, so it should be explained clearly. In practice, many customers are shown only the monthly payment. They do not learn how the rate was chosen. They are not told whether lower rates were available. Some are reassured that the rate is standard or “what everyone gets”. Others are told it is the best rate without being shown any comparison.

This approach makes it very hard to compare options or to understand how much extra you might be paying over the life of the agreement.

Pressure selling

Pressure affects how people make choices because it takes away the time needed to read and think. Some customers feel they must decide on the spot to secure a particular car. Others are told that a deal or rate will disappear if they do not sign that day. Even if the salesperson sounds friendly, a rushed explanation can still create pressure, especially if a customer feels awkward about asking for more time.

In that kind of environment, it is easy to miss details or to agree to something you do not fully understand.

Misleading reassurance

Sales teams often use light reassurance to keep the process smooth. Customers hear phrases such as “everyone goes for this option” or “this is the standard PCP deal”. These statements sound calming and many people accept them because they assume the dealer is steering them towards what most customers choose. The problem is that comments like this can hide important differences in interest rates, balloon payments and mileage limits between individuals.

That reassurance can quietly discourage customers from asking the questions that would reveal those differences.

Poor affordability checks

Affordability checks should look at a customer’s actual financial situation. They should take into account income, essential bills and likely changes in future circumstances. In reality, some checks were carried out quickly in a few short questions. Others relied on rough estimates instead of proper figures. Many did not explain how the balloon payment or mileage charges could affect affordability later on.

When these checks are weak, customers can end up with agreements that do not fit their lives as closely as they thought, which is why affordability issues appear throughout the FCA’s work on PCP car finance.

The Role of Commission in Mis-Selling

Commission sat behind many decisions made during PCP sales. It influenced interest rates. It influenced which products were presented. It influenced how much detail was shared with the customer.

How discretionary commission arrangements worked

A discretionary commission arrangement, often shortened to DCA, allowed the dealer to choose the interest rate from within a set band provided by the lender. If the dealer chose a higher rate, they could earn more commission on the deal. Customers were rarely told this. Many believed the rate was fixed or that it was the only rate available. After reviewing the impact of DCAs, the FCA banned them in January 2021 [3] because they led to unfair costs for customers.

Why customers were unaware

The sales process focused heavily on the monthly payment rather than the structure behind it. Customers were not walked through how commission worked. They were not told that the dealer’s income could rise when the interest rate rose. There was nothing visible in the process that suggested a conflict of interest.

That silence around commission is one of the key reasons so many agreements are now being reviewed.

Balloon Payments

The balloon payment is the optional final payment that allows you to own the car at the end of the PCP term. Many customers misunderstand this part of the agreement because it is often described quickly or in vague terms.

How balloon amounts are set

The balloon payment is based on what the lender thinks the car will be worth at the end of the agreement. That estimate is built from the lender’s data and assumptions. Most customers are never shown how the figure is reached. They simply see the amount written into the agreement.

Common misunderstandings

Many people assume they will be able to refinance the balloon payment with ease. Some think the amount will feel affordable by the time they reach the end of the agreement. Others mix it up with a deposit because the language used feels similar. Some believe choosing not to pay the balloon and handing the car back is straightforward without realising there may be condition checks and other factors to consider.

These misunderstandings normally appear when the agreement is coming to an end and real choices have to be made.

Why poor explanation leads to mis-selling concerns

Customers need clear information to understand whether a PCP car finance agreement fits their long-term plans. If the balloon payment is not explained properly, it becomes very difficult to judge how affordable the whole agreement will feel in three or four years’ time. That is why balloon payment issues show up in so many mis-sold PCP cases.

Mileage Limits

Mileage limits are used in PCP agreements to protect the expected future value of the car. They also play a major part in how much the deal costs overall. Many customers say that this part of the agreement was not explained in enough detail.

What happens when limits are exceeded

If you drive more miles than your contract allows, you usually pay a charge for each extra mile at the end of the agreement. Those charges can add up quickly if the limit you chose does not reflect how you actually use the car.

How poor explanation causes problems

Some customers are steered towards a lower mileage limit because it makes the monthly payments look cheaper. Others are not asked any meaningful questions about their daily or weekly driving. Some leave thinking that they can change the mileage limit easily later on. These misunderstandings can lead to unexpected and sometimes large charges when the agreement ends.

Because of this, mileage issues are often one of the clearest practical signs that a PCP agreement may have been mis-sold.

Affordability and Consumer Understanding

Affordability sits at the heart of responsible lending. Customers need a clear picture of how a PCP car finance agreement will affect their finances over time, not just in the first few months.

Common affordability gaps

Many PCP agreements show the same kinds of weaknesses, including:

• Limited checks on income and essential spending
• Little or no breakdown of the total amount to be repaid
• No real discussion of what might change in future
• No clear explanation of how the balloon payment affects affordability
• A strong focus on the monthly payment without context

Why confusion is common

Most customers are not financial experts and should not need to be. They rely on the dealership to turn a complex product into something they can understand. When explanations are short, rushed or incomplete, confusion is almost guaranteed. That confusion is not the customer’s fault. It reflects the quality of the information they were given at the time.

Example Scenarios

The following fictional scenarios show how mis-selling can appear in everyday PCP car finance agreements.

Scenario 1. The customer who unknowingly paid a higher interest rate

Mark had a strong credit score and expected a good rate. The salesperson told him the rate he was offered was typical for customers like him. Mark trusted that and went ahead. Years later he found out that the dealer could have offered a lower rate but chose a higher one because it gave them more commission.

Scenario 2. The customer who accepted an unrealistic mileage limit

Priya drives long distances for work. During the sale, she was encouraged to pick a lower mileage limit because it made the monthly payment more attractive. She assumed the dealership had taken her needs into account. When the agreement ended, she faced significant excess mileage charges because the limit she agreed to never matched her real driving habits.

Scenario 3. The customer who misunderstood the balloon payment

James was reassured that he could simply refinance the balloon payment at the end of the term. The salesperson made it sound easy. When he reached the end of the agreement, he realised the balloon amount was higher than he expected and that his refinancing options were limited and expensive.

Why Mis-Selling Became Widespread

Mis-selling did not happen by accident in just a few places. It developed across the PCP market because of the way products were designed, sold and overseen.

Industry behaviour

Many dealerships across the UK followed similar scripts. They focused on the monthly cost. They did not always explain interest rates, commission or key terms such as balloon payments and mileage limits in enough detail.

Incentive structures

Dealers often earned more when customers accepted higher interest rates. That financial incentive had a strong influence on how deals were put together and which products were promoted.

Limited oversight before 2021

The FCA found that the market lacked robust oversight before the ban on discretionary commission. As a result, many of the patterns described in this guide were able to develop and continue over a long period.

Types of Unfair Car Finance Agreements Identified by the FCA

The FCA’s review highlighted several types of commercial arrangements that could make a PCP car finance relationship unfair if they were not properly disclosed.

Discretionary Commission Arrangements (DCAs)

These agreements gave dealers the freedom to increase the interest rate to raise their commission. Customers were rarely told that this link existed. DCAs were banned in January 2021 because they led to unfair costs for many drivers.

High Commission Arrangements

Even where commission was not discretionary, a relationship may still be unfair if the commission made up a large proportion of the total cost of credit and was not explained clearly. The FCA’s proposed redress scheme uses specific thresholds to help identify these cases. It highlights commission that is 35% or more of the total cost of credit and at least 10% of the loan amount.

Tied Arrangements

A tied arrangement happens when a dealer tells a customer they are checking a panel of lenders to find the best rate, but in reality they are tied to just one lender through an agreement such as exclusivity or a right of first refusal. The customer believes they have been offered a choice when their options were actually limited from the start.

Why these practices matter

In each of these situations, the customer is missing key information about how their interest rate is set and how the dealer is being paid. That lack of transparency is at the centre of the current car finance scandal. It is also why the FCA is consulting on a consumer redress scheme for agreements entered between 6 April 2007 and 1 November 2024.

How Customers Usually Discover the Mis-Selling

Most people do not spot mis-selling on the day they sign. It tends to come to light much later.

Media coverage

News reports and consumer programmes help people recognise patterns in PCP car finance that feel very similar to their own experience.

FCA updates or lender letters

Some customers receive letters or emails that mention reviews, investigations or potential issues with past mis-sold car finance agreements.

Claims firms and checking tools

Many drivers now use online checking tools to see whether their PCP agreement shows common signs of mis-selling. These tools offer a simple first step without asking the customer to dig through legal detail on their own.

Conversations with friends or colleagues

Often, the issue becomes clearer when people start talking about it. When someone shares that they are looking into a PCP claim, others begin to question their own agreements. This is usually when customers ask Can I claim compensation if I traded in the car years ago? because they want to know if a potential claim is still possible even when the car has long since gone.

Conclusion

Mis-selling became widespread in PCP car finance because of how the market was set up and how products were sold. Customers were not always given full information. They were often steered towards options that increased commission for the dealer. They did not always get the clarity they needed to make confident, long-term financial decisions.

If this sounds familiar, you are not alone. Many people now realise that their confusion came from the way information was presented, not from anything they did wrong. If you recognise the patterns described in this guide in your own PCP car finance agreement, you may want to check your eligibility through a trusted service or online tool.

It is also common to have questions like Can I make a claim if the dealership closed down or changed ownership? or Can I claim if I bought my car from a broker or car supermarket? because older agreements and different types of seller can still show the same signs of mis-selling.

Clear information gives you more control over what happens next. It helps you understand your options and supports your right to fairness and transparency in every financial agreement you enter into.

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References:

1. The FCA has identified three main types of undisclosed arrangements that often created unfairness - https://www.fca.org.uk/publication/consultation/cp25-27.pdf
2. the FCA is consulting on a consumer redress scheme - https://www.fca.org.uk/news/statements/fca-consults-motor-finance-compensation-scheme
3. After reviewing the impact of DCAs, the FCA banned them in January 2021 - https://www.fca.org.uk/publication/consultation/cp24-15.pdf