Car Finance Claim

What is the car finance scandal and how can I make a claim?

Car owners who bought a car using a car financing arrangement before January 2021 might be in line for compensation following an ongoing investigation by the Financial Conduct Authority (FCA).

Drivers who used car finance, such as a hire purchase agreement or personal contract purchase, to buy a car, van, campervan or motorbike before 28 January 2021, could have a claim if something called a ‘discretionary commission arrangement’ was used to decide how much interest they should be charged on the loan.

car finance claims

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More than a million people have so far complained to their lenders about their car loans, and MoneySavingExpert’s Martin Lewis estimates that customers could be due thousands of pounds in compensation.

Lenders are understood to be putting aside hundreds of millions of pounds in contingency funds in case the FCA finds against them.

What was the problem with some car finance deals?

Rather than buying a new car outright, many people choose to buy a car on finance, meaning that they are effectively taking out a loan and paying it off in instalments over time.

Like regular loans, these loans charge interest and in the years leading up to 2021 some financial lenders allowed brokers – for example, car dealers – to set the interest rates they offered to customers for car finance.

While customers might have thought that the interest rate was non-negotiable, the dealer was actually able to adjust the interest rate for themselves within a certain range. The higher the interest rate, says the FCA, the higher the commission the broker received, which created an incentive to increase how much buyers were being charged for their car loans. This was known as a ‘discretionary commission arrangement’ and it is thought that around 40 per cent of car finance deals had this facility.

Discretionary commission arrangements were banned altogether in 2021, but due to the high volume of complaints about how car financing was arranged before the ban, the FCA is investigating whether people were being treated unfairly and should receive compensation.

Car dealers and lenders deny that customers lost out thanks to this common practice, saying this was just one of many factors – such as offering discounts on prices and other add-ons – that enabled customers to purchase their chosen car.

How can I find out if this applies to me?

If you used car finance with a discretionary commission arrangement to buy a motor vehicle, such as a car or a motorbike, before 28 January 2021, then you might be one of the millions of people thought to be affected. This includes Personal Contract Purchases (PCP) where you pay off the loan in instalments before making a large ‘balloon’ payment at the end, or hire purchase where you pay off the loan amount in monthly instalments.

car finance claims

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What should I do if I had one of these car loans?

If you think this applies to you, then you should make a complaint to either your broker, ie your car dealer, or the company which provided the car finance, such as a bank or financial provider. This is the company you will have been making payments to each month.

If you don’t know who your lender was, check your credit file as the provider might be included in your details. You can check your credit file for free – find out how at the Information Commissioner’s Office.

The FCA advises that you should complain to your provider within six years of taking out the loan, or within three years from when you became aware that you had cause to complain. So, if you think you could be running out of time, you should consider complaining to your provider now.

car finance claims

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You are still able to make a complaint even if you’ve finished paying off the finance agreement, or even if your car was repossessed, and if you have had many car finance agreements over the years which include discretionary commission arrangements, then you will be able to submit a complaint about each one, and potentially be able to receive multiple payouts.

If you lease or leased your car, such as via a Personal Contract Hire scheme, then you will not be eligible to make a complaint as it isn’t included in the FCA investigation. Interest-free finance agreements aren’t included either, because there would not have been a discretionary commission arrangement in place.

Due to the high volume of complaints, the FCA is giving lenders more time in which to get back to customers, so they have until 20 November 2024 to respond, unless the deadline is extended further. After that, you can then make a complaint to the Financial Ombudsman.

MoneySavingExpert‘s Martin Lewis says when the investigation is completed, thought to be around September time unless the FCA says there was nothing untoward going on, it is likely that the FCA will set up a redress scheme for lenders to pay back the overcharged interest.

Even if the complaints process has been temporarily paused to enable lenders and brokers to deal with the volume of complaints, if you are planning to complain then you can do so regardless, and avoid missing out, in case, as with PPI, there is a time limit later set.

Should I use a claims management company?

In the wake of the PPI mis-selling scandal, hundreds of firms were set up to supposedly help customers make a claim for PPI rather than doing it themselves. The firms took a cut of any money due to be paid back to the consumer and that is likely to happen with car financing as well so you are better off lodging a complaint directly with your provider.

MoneySavingExpert has a handy free template so you can make a complaint yourself without going through a third party. If you do use a claims management company, then the FCA has some useful information about what to look out for.


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