The Financial Conduct Authority (FCA) has launched an investigation into
discretionary commission arrangements (DCAs) affecting car finance agreements, including both
Personal Contract Purchase (PCP) and
Hire Purchase (HP). This guide aims to help consumers understand these two types of financing options and their relevance in the context of the FCA's ongoing inquiry.
What is PCP (Personal Contract Purchase)?
Personal Contract Purchase (PCP) is a popular form of car finance that allows you to pay for your vehicle over an agreed period, usually between 12 to 48 months. The process typically starts with a deposit payment, followed by regular monthly payments spread out over the term of the agreement. At the end of the contract, you have three main options: return the car, purchase it at its guaranteed minimum future value (GMFV), or trade it in for another vehicle.
Typical Terms
- Deposit: Usually a significant upfront payment, often around 10% to 30% of the total cost.
- Monthly Payments: These are usually lower than those for Hire Purchase because you're only paying for the depreciation of the car during your possession period.
- Guaranteed Minimum Future Value (GMFV): This is a pre-agreed value that represents what the vehicle will be worth at the end of the contract. The GMFV can influence the overall cost of financing.
What is HP (Hire Purchase)?
Hire Purchase (HP) allows you to finance a car in full and become its outright owner upon completion of the agreed terms, which typically range from 12 to 60 months. Unlike PCP, with HP, you make regular monthly payments that cover both the cost of the vehicle and interest charges.
Typical Terms
- Deposit: A smaller initial payment compared to PCP.
- Fixed Monthly Payments: These are consistent throughout the term of your agreement.
- Ownership Transfer: Once all agreed payments have been made, ownership is transferred to you without any balloon payment or other conditions.
Key Differences Between PCP and HP
Ownership
- PCP: You do not own the vehicle outright until the end of the contract when you choose to buy it at the GMFV.
- HP: You gain full ownership once all payments are made, even before the end of the term if you pay off the balance early.
Monthly Payments
- PCP: Typically lower monthly payments compared to HP due to the balloon payment at the end of the contract.
- HP: Higher regular payments but no additional lump sum required for final ownership.
End-of-Term Options
- PCP: You can return the car, purchase it through GMFV, or choose a new agreement with another vehicle.
- HP: The only option is to own the car outright once all payments are complete.
Flexibility
- PCP: Offers greater flexibility at the end of the term for trading in your current vehicle and moving onto a new one.
- HP: Less flexible as it's focused on ownership rather than leasing or swapping vehicles.
Total Cost
- PCP: Can be more expensive over time due to interest rates and GMFV, which may not accurately reflect market value at the end of the term.
- HP: Generally provides a clear total cost upfront with no surprises at the end of the agreement.
Which Finance Types Are Covered by the FCA Investigation?
The Financial Conduct Authority's investigation into DCAs includes both PCP and HP agreements. Personal contract hire (PCH or leasing) is generally not covered under this specific inquiry because it operates differently from ownership-based finance options like PCP and HP. The focus of the FCA investigation is on financing agreements that result in vehicle ownership, which makes PCP and HP particularly relevant.
How DCAs Affected PCP Agreements
A significant aspect of the FCA's investigation involves how dealers could set a higher interest rate under the DCA framework when offering PCP contracts. This discretion allowed for an increase in monthly payments as well as the overall cost over the term of the agreement, potentially leading to financial hardship for consumers who were not aware they had negotiated a less favourable deal.
How DCAs Affected HP Agreements
Similar to how DCAs impacted PCP agreements, dealers also had the ability to set higher interest rates under DCA terms for Hire Purchase arrangements. This resulted in increased monthly payments and total costs, which could have negative implications for consumers who entered into these agreements without full transparency.
How Many PCP and HP Agreements Are Affected?
The FCA estimates that 12.1 million eligible agreements (FCA estimate) are potentially affected by DCAs, amounting to a staggering £7.5 billion in total costs (FCA estimate). These figures highlight the widespread impact of DCAs across both PCP and HP financing options.
How to Complain About Your PCP or HP Agreement for Free
If you believe your PCP or HP agreement was affected by a DCA, it is crucial to understand that you can
complain directly to your lender without incurring additional fees. You do not need a
claims management company; instead, you should contact the financial institution involved and explain your concerns clearly.
Sources and References
- Financial Conduct Authority (FCA). "Motor Finance Discretionary Commission Arrangements Investigation." 2024.
- Office for National Statistics (ONS) Census. Population estimates, 2021.
Key FCA Figures
The FCA confirmed on 30 March 2026: 12.1 million eligible agreements, £829 average compensation per agreement, £7.5 billion total redress at 75% consumer uptake, and £9.1 billion total cost to firms. The scheme covers agreements from 6 April 2007 to 1 November 2024. Two deadlines apply: 30 June 2026 for post-2014 agreements and 31 August 2026 for pre-2014. Final complaint deadline: 31 August 2027.
You can complain to your lender directly for free. You do not need a claims management company.
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MLJ.org.uk (mlj.org.uk) is a free, independent information service. We are not a claims management company, solicitor, law firm, or financial adviser. We do not handle complaints, process claims, charge fees, or accept any percentage of compensation. This information does not constitute legal or financial advice. You can complain to your lender directly for free. You do not need a claims management company. If your lender rejects your complaint, you can escalate to the Financial Ombudsman Service at no cost. For personalised legal or financial advice, consult a qualified professional.