Background of the Financial Mis-Selling of Car Loans
The Financial Conduct Authority (FCA) has recently begun a comprehensive investigation into historical mis-sold car finance loans, expressing serious concerns over potential widespread mis-selling of unfair deals. At the heart of this inquiry is the examination of a commission model, banned in January 2021, where car dealers were incentivised by banks to promote more expensive loans, thereby earning higher commissions.
Of significant concern to the FCA is the possibility that consumers may have been treated unfairly even before the ban, given the lack of adequate information regarding this commission structure.
Car Dealers Secret Commissions Exposed
In or about 2014, car dealers must inform the consumer buying the motor vehicle if there is any commission payable back to the car dealer when they organise a loan for a motor vehicle used to aid the acquisition. They must also tell them the value of the commission if the car purchaser enquires about the amount of the commission. The secret commission scandal is similar to that claimed by loans acquired on behalf of borrowers that had attached to it payment protection policies (PPI).
Decision By the Financial Ombudsman Service (FOS)
The mis-selling of car dealer finance is reported in the press. Compensation has already been awarded to borrowers of Barclays and Black Horse Finance, both subsidiaries of Lloyds Banking Group. In these cases, consumers found themselves paying higher interest rates due to dealers receiving elevated commissions. The FOS ruled in favour of the consumers, directing Barclays and Black Horse to compensate one with £1,593 and the other with £1,299.
It is reported by the Telegraph that FOS had banned the “discretionary commission” incentives in 2021 after finding that individual buyers were paying up to £1,100 over the odds on a £10,000, four-year finance package. More than 10,000 complaints have been made to the FOS by drivers who believe they were overcharged.
Reported in the Daily Mirror:
Abby Thomas, Chief Executive and Chief Ombudsman, said: “When people take out a car loan it’s imperative they are treated fairly and the financial implications are totally transparent. Unfortunately, that is not always the case. We’ve heard from more than 10,000 people who fear they were charged too much for their finance, and we know many more are waiting in the wings.
“We’ve resolved two complaints where we found that the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer. Our decisions could signal the way forward for many more similar complaints that have not been resolved between firms and consumers.
“That’s why I welcome the Financial Conduct Authority’s decision to assess this issue further. In the meantime, we’re totally committed to continuing to investigate cases with our service. If people are concerned about their car loans and are unhappy with how firms have responded, they can come directly to our free, independent service and we will investigate their complaint.”
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FCA to Conduct an Inquiry Into Mis-Sold Car Finance
These rulings, combined with a discernible surge in complaints and data from the FOS indicating a substantial uptake in car finance complaints, have propelled the FCA into launching a meticulous 37-week investigation. This investigation not only aims to scrutinize potential widespread misconduct but also holds the promise of securing compensation for consumers who might have been adversely affected. The unfolding scenario underscores the pressing need for greater transparency and fair practices within the car finance industry.
The spike in complaints can be partly attributed to claims management companies seeking new avenues following the Payment Protection Insurance (PPI) mis-selling scandal. The FCA’s proactive approach in anticipation of discovering possible misconduct demonstrates a commitment to safeguarding consumer rights in the realm of car finance.
Moreover, the compensation received by consumers in the cited cases serves as a tangible example of the financial impact on individuals who, unknowingly or not, were subjected to what is now being scrutinized as potentially unfair practices in the car finance sector. As the investigation progresses, its findings and subsequent actions may reshape industry practices and provide redress to those who have experienced financial detriment due to undisclosed commission structures in historical car finance agreements.
The FCA seems quietly confident that it will find evidence of wrongdoing, as documented by a quote from the body’s Chief Executive. While delivering a speech at the Morgan Stanley European Financials Conference, hosted in London, Nikhil Rathi (FCA Chief Executive) mentioned the mis-sold car finance case. Rathi said that the agency intends to achieve “earlier clarity” than past redress cases by adopting a proactive approach to “thoroughly understand the problem.” Most interestingly, he said that “while certainty is not something I can provide today, and I cannot prejudge what we might find, I can say in my view it is improbable we will find nothing to report as we look at historic motor finance sales.” The fact that the Chief Executive personally believes it ‘improbable’ the FCA will find nothing to report suggests we’re likely heading for a redress scheme when the agency concludes its investigation in September.
What The FOS Will Look at to Make a Claim
On their website, they provide the following criteria;
On 11 January 2024 the financial services regulator, the Financial Conduct Authority (FCA), announced it would be completing a review of the car finance market to ensure that any consumers that may have suffered a loss due to poor practices are compensated. While it undertakes the review, the FCA has introduced temporary complaint-handling rules relating to certain car finance complaints where a discretionary commission arrangement was in place. This will apply to complaints where:
- a consumer bought a car using car finance before 28 January 2021
- the lender and car dealer (acting as credit broker) had a discretionary commission arrangement, and
- the consumer:
- made a complaint to the car dealer (acting as credit broker) or lender between 17 November 2023 and 25 September 2024, or
- received a final response to their complaint from the business between 12 July 2023 and 20 November 2024.
The temporary complaint-handling rules won’t apply to complaints relating to:
- cars bought using car finance on or after 28 January 2021
- cars purchased under a hire agreement, such as Personal Contract Hire
The temporary complaint-handling rules include:
- giving consumers longer to bring their complaint to us. Usually, you have 6 months from the date on the final response to refer your complaint to us, but the FCA has extended this to 15 months for certain complaints.
- extending the 8-week timeframe for businesses to send a final response on certain car finance complaints by an additional 37 weeks (so giving businesses up to 45 weeks in total).
You can find more information about the temporary complaint-handling rules on the FCA’s website.
How to Claim for Mis-Sold Car Finance
We can help you every step of the way, from submitting a claim against the loan company and thereafter through FOS. We do charge for this service in the event that we win. If we do not obtain any money, you pay nothing. However, we must advise that FOS undertake their own free scheme, so if you feel you can claim directly yourself and have the time, then you should take up that service.
To file a claim for a mis-sold car loan, the process typically involves the following steps:
- Check Eligibility: We will determine if you are eligible to claim compensation for mis-sold car finance. This can include factors such as unaffordable loans, lack of proper information, or being overcharged.
- Submit a Claim: We will complete an online application form or write a letter directly to the bank/lender. Please note the claim is against the bank, not the car dealer. This form will require details about the finance agreements, the reasons for the claim, and any supporting information.
- Review and Negotiation: Once the claim is submitted, we will review your case and handle the complaint on your behalf. The banks will negotiate and offer you compensation for mis-sold car finance or reject your claim.
- Potential Refund: If the claim is successful, you may be eligible to receive a refund on all interest and fees paid on the loan. The amount of compensation can vary based on factors such as extra interest paid and the specific circumstances of the mis-selling.
- Financial Ombudsman Service (FOS): If the claim is disputed or unsuccessful, it may be possible to refer the case to the Financial Ombudsman Service for further review. We will submit the claim to FOS and deal with all queries and questions they may have before making a decision to compensate you.
- No Win No Fee Basis: As a specialist legal firm helping consumers with mis-sold financial products for over 17 years, our no win, no fee solicitors in Liverpool won’t charge you any fees if your claim is unsuccessful.
It’s important to act quickly as there are statutory deadlines, known as limitation periods, that apply to mis-selling claims. The specific details of the process may vary depending on the legal firm or claims company you choose to work with.
Further Reading on Reclaiming for Mis-Sold Car Loans
At R James Hutcheon Solicitors, we are featured in the Sunday Times acting for Mr Chung to re-claim his car finance. We have been acting for hundreds of claimants over the years for mis-sold car finance and below are a few helpful links from our website on the scandal that has rocked UK banks.
