The Financial Conduct Authority (FCA) is currently investigating whether drivers were unknowingly overcharged when they took out car loans
A major update has been issued about the official investigation into the mis-selling of car finance.
The Financial Conduct Authority (FCA) is currently investigating whether drivers were unknowingly overcharged when they took out car loans. Specifically, the case is looking into car finance deals taken out before January 28, 2021, which contained “discretionary commission arrangements”. This allowed car dealers to adjust the interest offered to customers without informing them, to increase their commission.
According to the FCA, 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.
The FCA banned this practice in 2021. However, last year, the independent complaints arbitrator, the Financial Ombudsman Service (FOS), said it has heard from “more than 10,000” people who fear they were overcharged. The UK’s motor finance industry is awaiting the ruling, but if wrongdoing is found, it could face a multi-billion pound compensation bill to those affected. The case is being compared to the infamous Payment Protection Insurance (PPI) scandal from 2008.
James Dipple-Johnstone, interim chief ombudsman at the FOS appeared before the Treasury Committee this week to discuss the scale of these complaints. He told MPs that over 60,000 complaints are waiting for resolution. He said: “We’ve got over 60,000 cases with us relating to motor finance commission. So it is quite a significant block of work, which is why we’ve put a team onto it, not just to leave it there until the courts decide what they’re going to decide, but to start to prepare it so we can move it through quickly. Because we’ll have to be dealing with that next year and the year after.”
When asked this case compares with the scale of PPI, Mr Dipple-Johnstone said: “Obviously, the service saw a lot more during PPI, but there was a wider selling of that kind of product.” He noted that colleagues had said the PPI scandal was a “slow burn” adding: “Then it increased quite dramatically, and then the service cleared the work through.
“So what we’ve tried to do is learn from that event, prepare our ground, make sure we’ve got the training in place, we can scale up our resources quickly, we understand the product, we’ve got the legal advice, we’ve got the digital platforms to deal with the cases, so that if they do come through to us, we’re able to scale up quickly, so we can provide the best service we can to customers.”
The FCA launched an investigation last year and planned to publish the results of its investigation in September, but this has now been postponed to May 2024. Additionally, firms now have until December 4, 2025, to respond to customer complaints. The FCA said it had to push back the deadline because it took “longer than expected to get the data” it needed from implicated car finance firms.
Investigators have also been unable to complete their review because of a pending court case surrounding one of the complaints. The Supreme Court is scheduled to hear an appeal, brought by Close Brothers and FirstRand Bank, in March this year, which comes from a landmark Court of Appeal ruling from October 2024. The ruling declared it unlawful for car dealers, acting as brokers, to receive a commission from lenders without the customer’s fully informed consent on both commission arrangements (DCAs), where dealers set interest rates and non-discretionary commissions.
If the Supreme Court upholds the decision, lenders could face compensation bills worth billions. One estimate puts it at £30billion. MoneySavingExpert.com founder Martin Lewis has been raising awareness of the case so consumers do not miss out on compensation payouts if they come. Over the last few months, he has been urging Brits to log a complaint as soon as possible in case the FCA later imposes a timeframe.
To help do this, he created a letter formatting tool on his MoneySavingExpert.com website. The FCA is currently scheduled to publish its findings in May 2025.
