UK Car Finance Scandal: Major Compensation Ahead!

On Thursday 11th January 2024, the UK car finance industry was hit with groundbreaking news. The FCA released their statement surrounding discretionary commission arrangements in the motor finance market, which was banned in 2021, potentially affecting millions of consumers. If you have taken a car out on finance since 2007, you definitely want to keep reading as we have compiled a straightforward breakdown of this complex issue and its implications. 

What's The Issue?

The scandal revolves around discretionary commission arrangements and hidden interest in car finance in the £50bn-a-year motor finance sector. Before being outlawed in 2021, these arrangements allowed brokers to inflate the cost of car loans, benefiting from hidden interests. This practice reportedly could have cost drivers a whopping £165 million a year. The ban came after a thorough review, highlighting the system's inherent unfairness.

BBC’s Watchdog is investigating.

The Scope Of Complaints

The Financial Ombudsman Service (FOS) has been flooded with complaints - over 10,000 so far. The Financial Conduct Authority (FCA) has responded by extending the deadline for these complaints. Previously, you had six months to complain to the FOS after getting a response from your provider. Now, for responses received between July 12, 2023, and November 20, 2024, you have 15 months to act. So let's get that process rolling: get in touch with us at Clear Money Claims.

Who Does This Affect?

If you used car finance to buy a vehicle before January 28, 2021, especially under hire purchase agreements like Personal Contract Purchases, this news concerns you. However, if your car finance dates from on or after January 28, 2021, or if you used a Personal Contract Hire agreement, you're not affected by this issue.

FCA's Current Stance

The FCA is taking serious steps. They are pausing the 8-week deadline for providers to respond to complaints about this type of commission until September 25, 2024. New rules have been introduced, including a 37-week pause for firms to respond to complaints and extending the time for consumers to refer these complaints to the FOS.

Industry Reaction

Sue Robinson from the National Franchised Dealers Association (NFDA) emphasised their support for members and close monitoring of further developments from the FCA and FOS: "NFDA will support its members and monitor any further developments from the Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) on this issue.

Robinson reported that the FCA has requested a meeting with the NFDA to discuss the matter as soon as possible.

Legal Precedents And Potential Compensation

Several legal cases, including county court rulings, have favoured customers, indicating a potential flood of new claims. The FCA and FOS are committed to ensuring orderly, consistent, and efficient outcomes for consumers. If you think you were overcharged for your car loan, you might be in line for a payout. Notably, Martin Lewis of MoneySavingExpert.com has advised affected consumers to lodge complaints now: 'This may mean a payout for millions'

Scale Of Mis-Selling

Estimates suggest that the scale of this scandal could be comparable to the PPI scandal, with potentially billions at stake. The payout could include interest on loans, commission, or even the entire loan amount.

Martin Lewis continued to state: "I’ve done back of the envelope numbers and at the top end this could be PPI-type scale (that was £40 billion), big enough to be a form of quantitative easing (so real consequences for the next Government as it’ll likely take a year). 

"The pay out would be either the interest on loans (which is big), the commission (which is big), or the whole loan (which is huge). We're possibly talking thousands back for many.”

Market Impact

In recent years, a significant portion of new and used vehicles (80% - 90%) in the UK have been purchased using finance agreements. The FCA's decision to investigate whether consumers were charged inflated loan rates is a major development in this £50 billion-a-year sector. 

Major banks such as Lloyds Banking Group, Santander, and Barclays, big players in the market, might face hefty compensation bills if widespread mis-selling is confirmed.

Specific Cases

Two rulings have set a precedent: Black Horse (part of Lloyds Banking Group) and Barclays Partner Finance were required to pay compensation to customers who were charged higher interest rates than necessary. These cases illustrate the potential scale of the issue.

• Black Horse (part of Lloyds Banking Group) vs Mrs Y (2016):  In this case, the financial ombudsman ruled that Black Horse should pay compensation to ‘Mrs Y’, who entered into a hire purchase agreement to buy a used car in 2016. Mrs Y was charged an interest rate of 5.5%, despite the fact that the agreement could have been set up with a much lower rate of 2.49%. This decision highlights the importance of transparency and fairness in lending practices.

• Barclays Partner Finance vs Miss L (2018):  Similarly, Barclays Partner Finance, a part of the Barclays group, was ordered to compensate ‘Miss L’. She took out a conditional sale agreement, akin to hire purchase, to purchase a used car in 2018. The ruling emphasised the issue of high-interest rates, as Miss L was charged 4.67% interest, whereas the agreement could have been established at a rate of 2.68%. This case further underscores the regulatory focus on fair lending rates in the industry.

Your Next Steps

If you're concerned about how this might affect you, Clear Money Claims is here to help. We've assisted thousands in similar situations and can guide you through the process. 

Contact us via our form for support and potentially join the many who have successfully claimed compensation.