Dealers are warned over PCP commissions

There is concern in the motor trade industry following the news that the UK’s financial watchdog is warning that many car buyers have been overcharged when taking out a loan to purchase a new car.

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The findings of the Financial Conduct Authority, which were published in March 2019, revealed that the industry practice of allowing dealers to set their own interest rates for selling personal contract purchase (PCP) plans was costing consumers £300m each year.

The FCA used mystery shoppers to conduct its survey and found that a PCP deal on a £10,000 car on a fixed four-year deal could vary by as much as £1,100 in terms of interest payments. The report concluded that customers pay significantly more for finance as a result of lenders choosing to pay remuneration to brokers.


The FCA concluded that dealers were overcharging to boost their commission. PCPs are widely seen as having created the recent boom in the UK car market, creating a credit facility for private owners that was previously only available to companies.

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The motor trade industry has benefited from PCPs, which have helped to offset overheads such as motor trade insurance. If sales are to be hit by the FCA report, a closer look at insurance costs via sites such as could be advisable for traders.

Although the Finance and Leasing Association has claimed that the FCA survey was based on out-of-date statistics, the regulator only launched the investigation in April 2017.

Vehicle finance

The final report suggests that there is a conflict of interest that is not adequately controlled by the lenders when brokers have the discretion to set the client’s interest rate and thus earn higher commissions. The watchdog said the practice means clients pay significantly more than they should for their vehicle finance.

Concerns were also raised in the report that firms were failing to meet their obligations in terms of pre-contract disclosure and warned that dealers must address the issue.

At a time when new car sales are volatile, the criticism of PCPs does little to instil confidence in the sector. Enforcement of full disclosure of commissions at the point of sale could be imminent.

The FCA has suggested that it will speak to individual firms and that supervisory action could be on the horizon.