Now Reading: How to tell if you’re owed compensation over car finance mis-selling scandal
-
01
How to tell if you’re owed compensation over car finance mis-selling scandal
MILLIONS of borrowers could be set to receive thousands of pounds in compensation due to the car finance mis-selling scandal.
The Financial Conduct Authority (FCA) launched an investigation last year into whether motorists were unknowingly overcharged when they took out car loans.
The investigation by the City watchdog focuses on past practices where banks allowed car dealerships and brokers to set their own interest rates on loans.
Under a now-banned discretionary commission arrangement (DCA), dealerships and brokers had a financial incentive to charge higher interest rates, as their commission increased proportionally.
However, many customers were unaware of this practice.
As a consequence, individuals who financed the purchase of cars, motorbikes, or vans before January 28, 2021 – when DCA was prohibited – could be entitled to substantial compensation.
Read more in money
The Supreme Court is scheduled to hear an appeal between April 1-3 regarding a landmark Court of Appeal ruling from October 2024.
This ruling declared it unlawful for car dealers, acting as brokers, to receive commission from lenders without the fully informed consent of the customer.
This applies to both discretionary commission arrangements (DCAs), where dealers set interest rates, and non-discretionary commissions.
The appeal, brought by Close Brothers and FirstRand Bank, carries significant implications for the motor finance industry.
Should the Supreme Court uphold the Court of Appeal‘s decision, lenders could face a mammoth compensation bill, estimated to exceed £30billion.
The mis-selling scandal potentially affects millions of UK motorists who purchased a car, motorbike, or van using finance before January 28, 2021.
This includes those who financed their vehicles through a discretionary commission arrangement (DCA).
This accounts for around 40% of car finance agreements where dealers and brokers could set interest rates, often inflating them to earn higher commission.
Those whose finance agreements involved undisclosed commission, both discretionary and non-discretionary are also now included.
The Court of Appeal ruled that any undisclosed commission paid to brokers without the customer’s informed consent was unlawful.
This significantly broadens the scope of the scandal, potentially affecting up to 99% of car finance agreements made between April 2007 and January 2021.
This includes Personal Contract Plans (PCPs), Hire Purchase agreements, and leasing arrangements.
It’s important to note that even if you were previously denied compensation, you might still be eligible under the expanded scope of the investigation.
LENDERS SET ASIDE COMPO CASH
CUSTOMERS of several major high street banks who were mis-sold car finance could be in line to receive thousands of pounds in redress.
Last month, Lloyds Banking Group revealed it has set aside another £700million for potential compensation relating to motor finance commission arrangements this morning.
The bank said the provision – taken in the fourth quarter, and adding to the £450million provision taken last year – was in light of a court judgment on the issue.
Barclays has additionally allocated £90million in response to the car finance scandal, while Santander revealed last year that it had earmarked £295 million for potential payouts.
Meanwhile, Close Brothers announced it anticipates setting aside up to £165million in the first half of the year to address potential legal and compensation costs arising from the ongoing review into car loan commissions.
The FCA announced on Tuesday that it has been granted permission to intervene in the Court of Appeal hearing scheduled for next month.
In conjunction with this announcement, it also stated that, depending on the Supreme Court’s ruling, if it concludes that motor finance customers have incurred losses as a result of widespread failings by firms, it is likely to launch a consultation on an industry-wide redress scheme.
Under a redress scheme, firms would be required to assess whether their errors resulted in financial losses for customers and proactively reach out to those affected.
This would mean borrowers would not need to make a formal complaint to actively claw back their cash.
Although the regulator has signalled a strong intention to establish a redress scheme, reducing the immediate need to lodge complaints, it is still worthwhile to do so in the meantime, as nothing has been finalised.
According to the financial regulator, on a typical £10,000 motor finance agreement, discretionary commission arrangements could have caused customers to pay an additional £1,100 in interest over a four-year term.
Consumer finance website MoneySavingExpert.com offers an email template to help you complain to your finance provider.
You can download this by visiting moneysavingexpert.com/reclaim/reclaim-car-finance.
Alternatively, you can complain directly without using the template.
It’s crucial for anyone who took out car finance to file a claim, even if a previous claim was denied.
In your complaint, ask whether you were overcharged due to your broker receiving a commission and request the company to rectify this if it occurred.
If you’re unsatisfied with the company’s response, you can escalate your complaint to the Financial Ombudsman Service (FOS) at no cost.
READ MORE SUN STORIES
You have until July 29, 2026, or up to 15 months from the date of the company’s final response letter, whichever is longer.
Avoid using a claims management firm, as they will take a portion of any successful claim.
