If there has been a mis-selling, or if you suspect you were mis-sold a car finance agreement, then you should start gathering evidence and prepare for a claim.
Car finance compensation is a remedy that consumers seek for being victims of unfair or mis-sold car finance agreements. This is the kind of compensation paid when financial products such as hire purchase (HP) or personal contract purchase (PCP) are sold in a way that puts the buyer at a disadvantage.
When critical information, such as commission and the real meaning of terms, is held, mis-selling occurs. In some situations, a dealer might encourage a consumer to accept a higher interest rate in exchange for securing loan approval or any other perks without revealing they are receiving a commission from that rate. Practices like this have become very common with dealers, leading to a surge in PCP claims.
What Is Car Finance Compensation?
Car finance compensations are meant to rectify these unfair practices that cause consumers financial instability. A car finance compensation may be paid in different ways – either through refunds for overpaid interest, adjustments to ongoing agreements, or cancellation of unfair terms. Regardless of how it is chosen to be paid, the main idea is that it ensures the consumers are treated fairly and that any lost fund is regained.
These misleading circumstances can make consumers question the car finance market and discourage dealers and lenders from pursuing such unethical practices.
You can pursue a car finance compensation for the following situations:
- Misrepresentation of Terms
- Unfair or Unclear terms in agreements
- Undisclosed dealer commissions
Who Is Eligible for Compensation?
Different issues may make you eligible for car finance compensation. Below are the instances that could qualify:
- Undisclosed Commissions
The most common reason for making a PCP claim is brought about by an undisclosed commission. This happens when the dealer receives a commission from the lender without informing you. Situations like this can influence the terms of your agreement, leaving you with a higher interest rate, which is exactly what your dealer will profit over.
- Misrepresentation of Terms
Key terms in a car finance agreement may often be misleading, so it’s possible you find yourself confused. This is where a dealer’s responsibility kicks in. They should be able to explain terms clearly such as interest rates, repayment amounts and balloon payments during a transaction.
- Unsuitable Financial Products
When the dealer fails to assess your financial situation correctly, it can lead to higher monthly payments than you can afford or longer payment terms and higher interest rates. A dealer should be able to conduct an affordability check before letting you sign in to an agreement.
- Pressure Selling
Photo by Frank Busch on Unsplash
A dealer in a rush to sell may pressure you into signing even without understanding the agreement or being given enough time to explore more options. If you’re being rushed into signing, consider it a red flag immediately. Pressure tactics often lead to hasty decisions that may not align with your financial interests, potentially locking you into unfavorable terms or agreements.
- Unfair Contract Terms
You get car financing mostly because you cannot afford to purchase a car outright, which is why for some reason you’ll think you should agree to what you are being offered. But you’re paying anyway, so fairness shouldn’t be compromised. The contract should remain fair on both parties and should not favor the dealer or the lender in any way. A way to impose this is through termination fee or hidden charges, which is blindsiding to a consumer.
- Not being informed of other options, such as PCP versus leasing
Another possible mis-selling tactic is being kept in the dark about other options that may be more suitable to your case. When buying a car, you’ll be presented with options for car financing, like leasing, hire purchase or personal contract purchase (PCP), but if this isn’t the case, and instead you were steered into one option that benefits the dealer the most, then you should already suspect mis-selling. Not knowing your other options limits your ability to take the most cost-effective or practical choice for your circumstance.
Mis-sold car finance cases
There have been numerous mis-sold car finance cases that were publicised, and this has helped raise awareness to people who might have fallen victims and weren’t aware yet. One of which is the Black Horse finance claim, which was what initiated the FCA to launch its investigation into hidden discretionary commission arrangements. Common examples of mis-sold car finance are undisclosed commissions which led to higher total costs, hidden fees buried in the fine print, or payments that were not thoroughly explained.
In 2014, Hopcraft, a student nurse with limited finances, went to Jordans, a large dealership in Hull, for a car. Because she is unable to afford the vehicle outright, she opted to secure a financing from Jordans, thinking they will give her the best deal. Jordans then submitted Hopcraft’s financial details to a panel. This proposal slightly exceeded her budget and required her father as a guarantor.
Close Brothers Motor Finance provided standard documents outlining the agreement terms but omitted any mention of the £183.26 commission paid to Jordans for arranging the deal. In the dealership, however, there was no mention of the commission. Close Brothers admitted that disclosing the commission wasn’t part of their practice during that time.
As previously mentioned, the commissions dealers get from misselling, can be significant in the amount a consumer pays. Undisclosed payments often cause the cost of credit to inflate excessively, putting the burden to consumers who are unknowingly charged with higher expenses. An example here is Johnson’s case in 2017, where he unknowingly paid nearly 70% of the cost of credit as a commission to the dealer.
Mr. Johnson entered into a car finance agreement without fully reviewing the paperwork presented to him, trusting the sales representative to provide all necessary information. Mr. Johnson stated that commission payments were never disclosed during the process, and he was unaware such practices were common in the industry. He assumed the interest charges he paid were standard costs and believed dealerships profited solely from car sales, not finance arrangements.
“If I had been told that the overwhelming majority of the cost of this agreement to me was just a commission payment to the dealer, I simply would have walked away and gone to a different dealership.” – Johnson mentioned during the case’s proceedings.
How to process a Claim?
You should know all the steps in filing a claim, as this can be confusing. It’s a lengthy process and will take even longer if you miss out on any step.
Step 1: Review your Car Finance Agreement
Your car finance agreement is the most important part when making a claim. It’s the foundation of your claim after all. Read it again, and this time – check every line, every word, and assess if there is a chance that some words are used as loopholes. Read the fine print, and look for terms and conditions that may seem unfair or unclear. Check every clause, and see if there are mentions of commissions, as this could be a potential red flag.
Step 2: Gather Supporting Evidence
Evidence supports your claim and gives you all the advantages should a court hearing pursue. It’s also the first thing your lender or dealer will ask once you file the claim against them. So it’s best to collect all sorts of evidence you can use to prove that you were mis-sold or that a mis-selling occurred. All documents related to the car finance agreement, such as the following will pass off as proof and evidence of your claim:
- Payment records and bank statements
- Any conversation with the dealer
- The Car Finance Agreement
- Other relevant paperwork
A tip for gathering evidence is to keep track of all detailed records, from emails, letters and receipts. Anything related to the car finance agreement can be helpful. Phone calls are also essential and documenting it can help you win your case. Just keep notes of it, and include the date, time and key points of the discussion.
However, if you’re unsure of what to look for, and whether any document could qualify as an evidence, then it’s best to contact a solicitor or claims specialist who can provide you with guidance and support.
Step 3: Identify the concern or issue
You should identify the particular issue that happened, which led you to believe that you have been mis-sold. Some of the common issues is the failure to disclose commission, being sold a more expensive financing deal, and being misled about the terms of the deal. It’s important to know how the mis-selling has affected you financially as this is crucial in the investigation too.
Step 4: Contact the Car Dealership or Lender
Bringing your claim to the court isn’t always the best thing especially if you want a faster resolution. Reaching out to your dealership or lender to discuss your concerns is the first option you should seek. Often, issues can be resolved at this stage without the need for further escalation. Write a formal complaint letter detailing your concerns and indicate that you are requesting for a resolution. If they do not respond, then you can escalate the matter.
Step 5: Seek help from Claims Specialists
Fortunately, there are professionals who are experts on the matter of making claims, and if you’re unsure on what your next step is, then working with them is the best next option. With professionals backing your claim, they can help further assess the strength of your claim, whether you need to gather additional evidence, and the proper guide towards submitting a formal complaint. Hiring claims specialists who are familiar with the legal framework of the case can help ensure that your case is presented effectively.
Step 6: Submit your Complaint to the Financial Ombudsman Service
Most of the time, racing a satisfactory resolution with the dealership or lender creates more disputes, so in this case, it is better to escalate to the Financial Ombudsman Service as they are an independent service that handles disputes like such in a legal manner. Prepare all your evidence and documentation, or have your Claim Specialist assist you with this.
Step 7: Await Resolution
The FOS or claims specialist will assess your case details once your claim has been submitted.
If the case favors you, they may award the compensation or ask the dealership to do so by adjusting the terms or refunding certain charges.
Following the correct steps can increase the chances of a successful claim.
Potential Outcomes of a Successful Claim
A successful claim can result in several potential outcomes. It can result in either of the following:
- Refund: This is the most common scenario. With a refund, you will be reimbursed for the overpayment and hidden fees that were unfairly charged. This is easier and less hassle but can be costly for the dealer if you were overcharged.
- Adjustment of Terms: If it is still an ongoing case, then best case scenario is for the dealer to agree on adjusting the term, removing the unclear or unfair clauses and ensuring that it’s a fairer deal than the ones you’ve had.
A successful claim can make consumers more aware and empowered to make a claim.
Conclusion
If there has been a mis-selling, or if you suspect you were mis-sold a car finance agreement, then you should start gathering evidence and prepare for a claim. You can also take proactive steps and review your car finance agreements to check whether you are eligible for a car compensation claim. Seeking the available remedy can offset the effects of the car financing dispute you’ve encountered. Consulting a professional is also ideal to ensure you’re on the right step towards a successful claim.
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