Lawyers and claims companies are circling the car finance industry as fears grow of a misselling scandal.
Hundreds of thousands of customers have bought vehicles under personal contract purchase (PCP) plans – often sold by forecourt salesmen who make commission by flogging these finance deals to buyers.
But there are fears that customers may have been misled about interest rates and the value of their car at the end of the deal.
Now, claims management companies who have made millions from the PPI misselling scandal are looking at the way car loans have been sold.
legal concerns: Hundreds of thousands of customers have bought vehicles under personal contract purchase plans (file picture)
Already claims firms have been set up specialising in PCP cases. And people have reported cold-calls from companies hoping to make PCP claims.
Justin Modray, of consumer group Candid Money, said: ‘As with PPI, sales commissions are often used to push these contracts and that may well have led to bad behaviour.
I wouldn’t be surprised if there were skeletons in the closet, although perhaps not on the same scale as PPI.’
The PCP schemes allow customers to get a new car for an upfront deposit and monthly payments.
At the end of a set period, the car is returned to the dealer and part of what it will be worth on the second-hand market is given to the driver to be put down as a deposit for a new one. It means consumers can get new cars for a fraction of the price they used to be charged.
A Money Mail investigation found that drivers on minimum wage could afford a £19,000 Mazda sports car.
But if used vehicle prices collapse, drivers could lose their entire deposit – and claims management firms believe this has not always been made clear.
They have also suggested that few car owners taking out a PCP were warned that they could pay a higher interest rate than in a standard hire purchase agreement.
It comes as concerns grow over the quality of the car finance market. The growing number of loans was criticised by the Association of Business Recovery Professionals R3 insolvency body yesterday.
Chairman Mark Sands said: ‘We’re seeing a steady increase and now record levels of debt are being taken on to fund new cars, which is something I haven’t seen before.’
Earlier this week, the Mail told how car finance loans were being packaged up and sold to giant investment funds and pension providers on the securities market.
Campaigners criticised the behaviour, warning that it was difficult to know how risky the deals were. Similar trading of toxic mortgages in the US sparked the financial crisis in 2008.
The National Association of Commercial Finance Brokers first highlighted interest from claims managers last year.
At the time, board member Graham Hill said: ‘If the PPI claims lawyers conclude there is enough basis to put forward a misselling case on PCPs then, given the huge volumes in which these products have been sold to both private individuals and businesses, the car finance industry could be shaken to its roots.
‘While the PCP in itself can be an appropriate solution for many car owners, as it reduces the monthly payments quite significantly, the issue lies with the way these products have been sold.’