Car Finance Scandal: Millions of Drivers Could Be Owed Money for Pre-2021 Deals

If you bought a car on finance before January 2021, you might be eligible for compensation due to possible mis-selling of car finance contracts by lenders and dealers. The Financial Conduct Authority (FCA) has launched a review of the car finance market to determine whether millions of drivers have been overcharged for car loans and whether they should be compensated appropriately.

What is the car finance mis-selling scandal?

Car finance involves customers borrowing a certain amount of money to pay for a vehicle. Normally, this amount is repaid in monthly instalments over a set period of time. Fees and interest are added on top. At the end of the term, customers can normally keep the car, return it or swap it for a new one. This depends on the type of contract.

Prior to January 2021, some lenders and car dealers (acting as brokers) used discretionary commission arrangements to sell potentially unfair finance deals to their customers. It meant that car dealers were able to set the interest rate charged on customers’ car finance contracts. Car dealers (acting as credit brokers) and lenders were encouraged to push deals with high interest rates in order to earn higher amounts of commission but this was not explained to customers.

The FCA banned this practice back in 2021. However, the Financial Ombudsman Service (FOS), which is the independent arbitrator of financial complaints between consumers and businesses, has been contacted by more than 10,000 people who took out car finance prior to the ban who believe they have been treated unfairly and been overcharged. This included two complaints which were upheld by the FOS where customers were compensated.

The FCA is now conducting an investigation to assess the extent of the issue, potentially leading to compensation for affected consumers.

Who can claim compensation for car finance?

You could be due compensation if you bought a car on finance before January 28, 2021, and if your lender and broker had a discretionary commission arrangement (DCA). This will depend on whether the FCA rules that compensation is necessary.

To find out if you are affected, you can check your car finance agreement or contact your lender or broker and ask them if they had a DCA. You can also check the FOS website for more information on how to make a complaint.

How much compensation will I get if I was mis-sold car finance?

The amount of compensation you could receive will depend on various factors, such as the type of car finance contract, the interest rate, the duration of the loan, and the difference between the rate you were charged and the rate you should have been charged.

According to some estimates, the average compensation could be around £1,500 per customer, but this could vary depending on individual circumstances.

When will the FCA finish its investigation?

The FCA has not given a specific timeline for its investigation, but it has said that it will provide an update in due course. The FCA has also put in place new temporary complaint handling rules for the firms affected by the review, which means that they have to acknowledge any complaints within five business days and provide a final response within eight weeks.

If you are not satisfied with the response from your lender or broker, you can escalate your complaint to the FOS, which can decide whether you are entitled to compensation and how much.

What should I do if I think I was mis-sold car finance?

If you think you were mis-sold car finance, you should act as soon as possible to make a claim. You can follow these steps:

• Gather evidence: Collect any documents or information related to your car finance contract, such as the agreement, the interest rate, the monthly payments, and the commission paid to the dealer or broker.
• Contact your lender or broker: Write to them and explain why you think you were mis-sold car finance. Ask them to confirm if they had a DCA and how it affected the interest rate you were charged. Request a refund of the excess interest and any other fees you paid.
• Wait for a response: Your lender or broker should acknowledge your complaint within five business days and provide a final response within eight weeks. If they agree to compensate you, they should tell you how much and when you will receive it. If they reject your complaint or offer you a lower amount than you expected, you can challenge their decision and ask for more evidence or explanation.
• Escalate your complaint: If you are not happy with the response from your lender or broker, or if you do not receive a response within eight weeks, you can take your complaint to the FOS. You can do this online, by phone, or by post. You will need to provide details of your complaint, the response from your lender or broker, and any evidence you have. The FOS will review your case and make a decision. If they uphold your complaint, they can order your lender or broker to pay you compensation and interest. If they reject your complaint, you can accept their decision or take legal action.

Conclusion

The car finance mis-selling scandal could affect millions of drivers who bought a car on finance before January 2021. The FCA is investigating the issue and could order compensation for consumers who were overcharged for car loans. If you think you were mis-sold car finance, you should make a claim as soon as possible and contact your lender or broker. If you are not satisfied with their response, you can escalate your complaint to the FOS, which can decide whether you are entitled to compensation and how much.