A Personal Contract Purchase (PCP) has no legal definition, rather it is a term that has been used by some finance companies as a marketing label for simple hire purchase or loan contracts. Under a normal hire purchase or personal loan agreement you make monthly payments of the same amount and after the term of the agreement expires you own the vehicle. With a PCP you make smaller monthly payments than under a simple hire purchase or loan agreement, but at the end of the agreement you are left with a “balloon payment” which may be as much as half the value of the vehicle. Under a PCP you do not own the vehicle until you have paid the balloon payment.
A key attraction of PCPs for car manufacturers is that the most common choice at the end, or near the end, of the agreement involves the customer returning the vehicle (in order to avoid the balloon payment) and entering into a new PCP. This effectively locks the customer in to buying a particular brand of vehicle.
PCPs may suit customers who wish to change their car every 2 to 4 years. But for customers who want to own their car come the end of the loan agreement, a PCP is usually not the best type of agreement as the customer will end up paying more in interest payments than under a simple hire purchase or loan agreement.
PCPs are in the news because in March 2019 the Financial Conduct Authority (FCA) published the final findings of its review of the motor finance sector. One of many striking findings by the FCA was that “some customers are paying significantly more for their motor finance because of the way lenders choose to remunerate their brokers”. Here, lenders are car finance companies, such as BMW Financial Services (GB) Ltd – brokers are the car salesmen. The FCA report goes on to describe a concern that lenders are encouraging brokers to sell PCPs – presumably so that the customer is “tied in” to a particular brand of car.
By paying the car salesman higher commission. Simples.
There are a number of challenges you can make to the legality of a PCP, but your best bet will be to show that the relationship between you and the lender was unfair as defined by s140A of the Consumer Credit Act 1974. And that relationship is likely to be unfair if you were not told how much commission the car salesman (the broker) was paid by the lender to sell you a PCP.
Lenders must keep records of all their customers’ transactions and dealings for at least 6 years. Under UK data law you are entitled a copy of the sales agreement and supporting documentation and we can make a data subject access request (DSAR) to obtain this documentation for you.
This will vary from case to case and will depend on factors such as the availability of the sales documentation and the stance taken by the lender. If everything goes in your favour you could be paid out in 6-9 months.
This will depend on the amount you borrowed under your PCP and the rate of interest you were charged. The FCA estimate that on a typical PCP where the loan is for £10,000, it is likely that the customer will pay more than £1,100 over the odds in interest – and this amount should be repaid in compensation to the customer if the PCP is judged to be unfair. Needless to say levels of compensation will be far higher when PCPs are used for the purchase of more expensive vehicles.
You may be able to claim compensation for as many PCPs as you have entered into in the last 10 years.
If your claim is rejected you can appeal to the Financial Ombudsman Service. Many claims that are rejected initially go on to be overturned by the FOS, but this will lead to a delay in your claim.
No. Our solicitors will act for you under a “no-win, no-fee” agreement, also known as a conditional fee agreement or CFA. Under this type of agreement you will not pay anything if you do not win your case. If you do win you case you will pay your solicitor a success fee, which typically will be capped at 25% of the compensation you receive.
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