Car Finance Disputes

The two most common types of car finance in the UK are:

• Hire Purchase (HP): You pay monthly instalments over an agreed term. You do not own the car until all payments (including any final fee) have been made. If you miss payments, the lender can repossess the vehicle. Once complete, the car is yours outright.
• Personal Contract Purchase (PCP): Similar to HP but includes a larger final "balloon payment" (Guaranteed Minimum Future Value — GMFV) at the end of the term. At the end, you can: pay the balloon and keep the car, return the car (if in agreed condition with the agreed mileage), or use any equity as a deposit on a new deal. Monthly payments are lower than HP as you are not paying off the full value.

Both are regulated by the Consumer Credit Act 1974 and the FCA. You have certain statutory rights under both types, regardless of what the contract says.

Under Section 99 of the Consumer Credit Act 1974, you have the right to voluntarily terminate an HP or PCP agreement at any time before the final payment, provided you have paid at least 50% of the total amount payable (including the final balloon payment for PCP).

Once 50% has been paid, you can:

1. Write to the lender stating you wish to voluntarily terminate under Section 99 CCA 1974
2. Return the vehicle in reasonable condition (fair wear and tear applies)
3. Walk away with no further obligation — you owe nothing further if the vehicle is in reasonable condition and mileage is not excessively above the agreed limit

The lender cannot charge you for the remaining payments if you have reached the 50% threshold. They can charge for damage beyond reasonable wear and tear or excess mileage. Keep a record of the vehicle's condition at return — photographs are essential.

In 2024, the FCA launched a major review and redress scheme following the discovery of widespread mis-selling of car finance through Discretionary Commission Arrangements (DCAs). Under DCAs (used until 2021), car dealers were paid higher commission by lenders if they charged the customer a higher interest rate — creating a conflict of interest that was not disclosed to customers.

If you took out car finance before January 2021 and were not told about the commission arrangement, you may be entitled to redress. The FCA's review is ongoing and a Supreme Court case (Hopcraft v Close Brothers) is expected to clarify the position. Steps to take:

• Check whether your agreement involved a DCA — you can ask your lender
• Submit a complaint to your lender citing the FCA review
• If unsatisfied, escalate to the FOS — time limits may be extended due to the FCA review

If you have a dispute with your car finance lender — about charges, terms, repossession, or mis-selling — follow this route:

1. Complain to the lender in writing, setting out your complaint clearly and what you want them to do. Keep copies of all correspondence.
2. The lender must provide a final response within 8 weeks (or explain why they need more time).
3. If you are not satisfied with the final response, or 8 weeks have passed, you can refer the complaint to the Financial Ombudsman Service (FOS) within 6 months of the final response.
4. The FOS is free to use and can award up to £415,000 in compensation. Its decisions are binding on the lender if you accept them.

For commission mis-selling complaints, the FCA has temporarily paused some FOS referral deadlines to allow the review to conclude — check the current position on the FCA and FOS websites.