Secret Commissions and Overcharging

Secret Commissions and Overcharging

Personal Contract Purchase (PCP) and Hire Purchase (HP) motor finance agreements are types of motor finance products that give consumers the opportunity to buy motor vehicles within their monthly budget. After making the final payment under a HP agreement, you become the owner of the vehicle. At the end of a PCP agreement, customers will have the option of either handing back the vehicle or purchasing it outright by paying a final “balloon payment.”

If you have entered into one of these agreements, you may have been significantly overcharged as result of secret commissions paid to the dealer or high interest rates.

In March 2019, the Financial Conduct Authority (FCA) reported that overcharging to UK car finance customers could be in the region of £300 million a year. It estimated that on a typical 4-year motor finance agreement, customers were paying up to £1,100 more for every £10,000 borrowed in secret commissions and heightened interest rates – an increase of 50%.

Affordability Assessments

The FCA were also not satisfied that motor finance companies were properly assessing customers’ ability to repay loans, with motor dealers focusing more on credit risk to the finance company.

Most customers were never told that they could shop elsewhere for finance to purchase their motor vehicle and instead were led to believe that they could only drive away the vehicle they wanted, by entering into the finance agreement offered by the motor dealers.

Hidden Commission Structures Designed to Overcharge You

Perhaps the biggest shock from the FCA’s report was the revelation that unbeknown to customers, lenders gave dealers the ability to set the interest rates, receiving higher commissions for higher interest rates. This practice was under what was known as Discretionary Commission Arrangements or DCAs. Following the FCA’s investigation, DCAs were banned in January 2021.

A case involving a DCA by the lender Clydesdale (trading as Barclays Partner Finance) was decided in favour of the consumer by the Financial Ombudsman Service (FOS), on the basis that the payment of hidden commission was a breach of the FCA’s commission disclosure rules, and it amounted to an Unfair Relationship under the Consumer Credit Act 1974. As a result, FOS ruled that Barclays must pay compensation to the consumer.

Barclays challenged this decision by way of a Judicial Review and the High Court upheld the original FOS decision in a judgment handed down on 17 December 2024.

Full High Court Judgment.

‍If you entered into either a PCP or HP agreement with a motor finance company from April 2007, you may have a claim to recover the amounts you have been overcharged and JLG can help you get the justice and compensation you deserve.