You could end up being owed money if your car finance had a “discretionary commission arrangement” in place, with the FCA having now launched an investigation into the now-banned practice
Millions of drivers could be owed compensation after the financial regulator opened a new investigation into car finance commission.
You could end up being owed money if your car finance had a “discretionary commission arrangement” in place – this allowed car dealers to increase interest rates, so they could get more commission. This type of practice was banned by the Financial Conduct Authority (FCA) in January 2021 – but now the regulator is investigating whether compensation could be due.
MoneySavingExpert.com founder Martin Lewis has said this could lead to billions of pounds of overcharged interest paid back to millions of people. You could potentially receive thousands of pounds back, but it all depends on the outcome of the investigation. Nothing has been confirmed just yet, as the FCA is continuing its probe – but here is everything we know so far.
How do I know if I’m affected?
You could end up being owed money if you purchased a car, van, campervan or motorbike on finance before January 28, 2021 and there was a “discretionary commission arrangement” included. The types of finance covered in the investigation are personal contract purchases (PCP) and hire purchase – it does not include personal contract hire, which is often referred to as leasing.
The vehicle had to primarily be for personal use, not business use, to potentially be eligible. The investigation won’t apply to you if you used car finance on or after January 28, 2021.
How much money could I get?
If the FCA does decide that compensation is due, it isn’t yet clear how much money drivers could potentially receive. The FCA has not yet revealed how any compensation could be issued – but generally speaking, the bigger your car finance, the more you were likely to have been overcharged.
FCA figures suggest drivers paid £1,100 more interest on a typical £10,000 four-year car finance deal when there was a discretionary commission arrangement.
The Financial Obudsman recently ordered one lender to pay the difference between the interest rate charged and the lowest available rate at the time. In this incidence, the driver was charged 5.5% interest but the cheapest rate elsewhere was 2.49%. The lender also had to pay interest at 8%.
Why is the FCA investigating?
The Financial Ombudsman has recently ruled in favour of two complaints – and in both cases, the person who complained was paid back the difference between the interest rate charged and the lowest available rate at the time. The FCA said this is “likely to prompt a significant increase” in new cases being brought forward.
There have also been claims brought in the County Courts, some of which have been upheld. As a result, the regulator wants to check if there has been “widespread misconduct” and if consumers have “lost out” by being charged more.
The FCA said: “There is significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements. Consequently, we are using our powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.”
When does the investigation end?
The FCA is scheduled to publish the findings of its investigation on September 25, 2024 – however, this could end up being extended if it needs more time. We won’t know what will happen next until then.
The regulator has put a pause on the eight-week deadline for firms to get back to your complaint while it carries out its investigation. This means if you complained on or after November 17, 2023, you may not get a response until the results of the investigation are published.
But you will have longer to refer your complaint to the Financial Ombudsman – with the deadline to escalate your complaint being increased from six months to 15 months. This applies to complaint responses received between July 12, 2023 and November 20, 2024.
So should I bother putting in a complaint now?
Martin Lewis has recommended putting in a complaint now anyway, regardless of the pause, in case a timeframe is later imposed that could cut off any future complaints. You should make a complaint direct to the firm that sold your car finance product.
Again, you may not get a response now until the outcome of the investigation – unless you put in your complaint before November 17, 2023. Avoid claims management firms that will take a cut of any compensation potentially owed. MoneySavingExpert.com has a free tool that will help you draft a template letter to send.