Mis-Sold Car Finance Claims

Did you take out a car finance loan (PCP or HP) before January 2021? You may have been mis-sold and paid a higher interest than necessary. Start your claim for compensation with Hutcheon Law.

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Background of the Financial Mis-Selling of Car Loans

The Financial Conduct Authority (FCA) has 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.

Discretionary Commission is Banned

Most of the claims for mis-sold car finance revolve around discretionary commission arrangements (DCAs), where lenders allowed brokers and dealers to inflate the interest rate of the agreement so the commission would increase. It is reported by the Telegraph that the Financial Conduct Authority (FCA) 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 Financial Ombudsman Service (FOS) by drivers who believe they were overcharged.

The Daily Mirror reports:

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.”

The FCA is Investigating 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 investigation. This investigation not only aims to scrutinise potential widespread misconduct but also promises to secure 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 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 scrutinised 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 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.”

In July 2024, the FCA announced that they were pushing back the expected conclusion of their investigation from September 2024 to May 2025. This decision is primarily due to the extent of the investigation and the fact that getting the data they needed for the review was taking longer than expected. While this decision will disappoint consumers, the signs are more likely that the FCA will rule that compensation is due.

A significant milestone happened in October 2024 when the Court of Appeal heard a test case involving three consumers vs. the Close Brothers and FirstRand lenders. The judges stated that it was unlawful for a commission to be paid without it being disclosed to the consumer and without their consent. The decision, however, wasn’t limited to DCAs. This ruling means that lenders may have been required to disclose and get consent for agreements involving any commission, not just discretionary commission. The Supreme Court will now hear an appeal; their final verdict could affect the entire consumer lending market. Hot on the heels of this news, the FCA announced that they were consulting whether to extend the time in which complaints needed to be dealt with for agreements involving any type of commission. The regulator aims to know their decision in weeks, with a potential extension in place by mid-December. This latest development not only makes it more likely that consumers with DCAs will get compensation but also potentially opens the door for consumers to get compensation if they had an agreement with any other type of commission that they weren’t told about or gave their informed consent on.

What Will Be Needed to Make a Claim

The FCA is still investigating the scandal; therefore, this is a fast-moving case with lots of uncertainty. Currently, the investigation is focused on car finance agreements involving discretionary commissions. Consequently, you will likely be eligible to claim if you purchased a car on finance between April 2007 and January 2021, and your agreement included a discretionary commission.

Following the recent court ruling and the FCA’s decision to launch a consultation on whether to extend the deadline for complaints involving agreements with all commissions, it remains possible that mis-sold car finance claims could soon open up to more people. If this is the case, around double the amount of consumers could be compensated.

Car Dealers Secret Commissions Exposed

Car dealers must inform consumers when buying a 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. This secret commission case resembles the payment protection policies (PPI) scandal.

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 the Financial Ombudsman Service (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 the 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.

Frequestly Asked Questions

Mis-sold car finance refers to situations where customers are not given the correct or full information about their finance deal. This can result in signing agreements that are unfair, unclear, or unsuitable for their financial circumstances.

You may have been mis-sold if:

You weren’t told about additional costs or fees, such as high interest rates.
The dealership didn’t disclose they were earning commission on your deal.
You didn’t fully understand how the agreement worked, especially balloon payments or penalties for early repayment.
You felt rushed or pressured into agreeing without time to consider the terms.

Yes, mis-sold car finance is unfortunately a widespread issue. Many customers were not informed of key details such as commissions paid to dealers, or they were given unsuitable finance agreements. Regulators have highlighted this as a problem in the car finance sector.

Yes, you can make a claim even if the car has been sold or the finance agreement is fully paid off. The claim focuses on how the agreement was mis-sold, not the ownership of the vehicle.

They should have clearly explained:

The total cost of the finance, including interest and fees.
Any commissions they were earning from the lender.
Whether the finance agreement was the best option for your needs.
All risks and payment responsibilities, especially for PCP or HP agreements.

Undisclosed commissions are a breach of financial regulations. If the dealership or broker did not tell you about receiving commission from the finance provider, you may have grounds for compensation. Courts and regulators consider this a conflict of interest.

The amount varies depending on your case. It could include:

A refund of overpaid interest.
Compensation for financial losses caused by the agreement.
Reduction of any remaining balance on the finance deal.

You typically have six years from the date the agreement was signed. However, if you only recently discovered the issue, you might have additional time to claim under the "date of knowledge" rule.

Mis-selling can occur in various types of agreements, such as:

Personal Contract Purchase (PCP): Often involves hidden fees or unclear balloon payments.
Hire Purchase (HP): May include excessive interest rates or unsuitable terms.
Lease Purchase: Risks not properly explained, such as penalties for early termination.

Yes, especially if you believe you were not treated fairly. Compensation can help recover financial losses and hold companies accountable for unfair practices.

No, filing a mis-sold car finance claim will not impact your credit score. The claim is focused on how the agreement was arranged and does not affect your credit history.

The FCA regulates car finance agreements and requires lenders and brokers to act transparently and fairly. If these rules are breached, customers may have a valid mis-selling claim.