Warning over mis-sold car finance scandal that could see drivers lose HALF of compensation cash

DRIVERS caught up in mis-sold car finance scandals are being warned not to risk losing half their compensation.

No-win, no-fee claims-chasing firms promise to claw back cash for customers, but they take a hefty chunk of the money.

Here, Samantha Partington explains how to find out if you are owed compensation — and how to keep the lot.

WHAT IS THE CAR FINANCE SCANDAL?

BEFORE January 2021, some car finance lenders allowed brokers who arranged loans to set, or increase, interest rates for customers.

It was known as a “discretionary commission arrangement”, and the higher they set your interest rate the more commission they earned.

Customers did not know this was in place or that they were paying over the odds for car insurance.

The practice was banned in January 2021 by the Financial Conduct Authority.

Since then, complaints have rocketed, with more than 17,000 filed to the Financial Ombudsman Service.

The FCA told car finance firms to review their practices and fix any wrongdoing — but this hasn’t happened.

Around 30,000 motor finance complaints were dealt with by major lenders between January 2019 and the end of June 2023.

Of these, 99 per cent were rejected because lenders do not think they have done anything wrong.

At the start of the year, the Ombudsman ruled that two complaints, one against Black Horse Finance, part of Lloyds Banking Group, and one against Barclays Partner Finance, be upheld and compensation paid.

If the FCA decides a large number of customers are owed money it could set up an industry-wide compensation scheme.

It will report its findings on September 24.

NO-WIN, NO-FEE FIRMS

CLAIM-chasing firms offer to fill in the paperwork and chase compensation for you, and while they are legal, experts slam them for taking a slice of the cash.

Consumer rights champion Martyn James said: “I’m deeply concerned that claims management companies, which often take huge chunks of your compensation for filling in a few forms, are aggressively moving into this sector.

“If you want to keep 100 per cent of your compensation, file the complaint yourself.”

Fees vary between firms — but they can take up to 50 per cent, plus VAT.

Drivers could also be charged a fee if they decide to cancel after instructing a claims company.

WHO CAN MAKE A CLAIM?

YOU must have used finance, which includes hire purchase agreements such as Personal Contract Purchases, to buy a car, van, campervan or motorbike before January 28, 2021.

Your lender or broker must have used a discretionary commission arrangement.

You may not know this but if you ask them, they have to tell you.

You are not eligible to claim if you took out a lease agreement or if your finance arrangement had a zero-per-cent interest rate.

Typically, complaints about any finance product need to be made to the provider within six years of a problem occurring.

If it has been longer than that, it should be within three years of you finding out there is a reason to complain.

COMPLAIN FOR FREE

YOU can complain to either your lender or the broker.

In your letter, state your full name, address and date of birth, your loan reference number, the date you bought the car and your car’s registration number.

If you took out the loan more than six years ago, tell the provider you have just learnt there may be an issue.

Ask them to tell you if there was a discretionary commission arrangement in place — and say that if there was, you want them to investigate your complaint about this arrangement.

There are lots of free templates available, from companies such as Consumer Voice, Which? and MoneySavingExpert, that can help you word your letter.

COMPLAIN NOW OR WAIT?

THE sheer volume of complaints has become too difficult for firms to deal with so the FCA has paused the usual eight-week deadline that companies have to respond to you.

Instead, they have until September 25 to reply.

James Daley, managing director of consumer group Fairer Finance, said: “Although firms don’t need to respond until the FCA has finished its review that doesn’t mean you can’t complain now.

“The watchdog may ask the industry to set up a mass compensation scheme but we don’t know that yet. The most important step is to get your complaint in as soon as possible.”

If you are unhappy with the outcome, you can take your complaint to the Ombudsman.

Their usual six months response time has been extended to a maximum of 15 months.

HIKE ON MAINTENANCE

HUNDREDS of thousands of parents could be hit in the pocket by a shake-up of child maintenance payments.

The move, proposed by The Department for Work and Pensions, could see 430,000 parents pay more for their kids’ living costs.

But 260,000 would see fees cut if they keep up with payments.

Almost a million children receive payments through the service, and the majority of parents use the free Direct Pay service.

But around a quarter of a million use Collect & Pay, where the paying person is charged 20 per cent and the receiving one loses four per cent.

Under the new proposals, all parents would be forced to use the Collect & Pay service, albeit with reduced fees set at two per cent for all parties.

This means if the liability were £100, the paying person would contribute £102 (£100 liability plus £2 fee), while the receiving one would get £98.

The DWP said parents failing to make their payments would revert to the original 20 per cent fee as a deterrent.

Mel Stride, Secretary of State for Work and Pensions, told The Sun: “Child maintenance means the difference between a childhood with hope or one blighted by poverty. That’s why we are cracking down on the few who are shirking their duties.”

The consultation on the changes will run until July 31.

UNREGULATED online auto-switch tools meant to save households money on their energy bills may be doing the opposite.

It’s feared up to 20,000 bill payers could have this year been moved to a tariff that was more costly than if they had gone direct to the new provider.

Many were not even aware they were signed up to the auto-switch option, and some have not been able to move back to their original supplier, claims a report submitted to energy regulator Ofgem by provider Octopus Energy.

Auto-switch platforms were popular pre-2021 before energy costs jumped.

Some charged fees for the service but others appear to make money by charging customers a higher tariff than if they had sorted their own move.

In March this year, Octopus Energy said it received a surge of complaints from customers who only realised they had switched supplier after receiving a bill from the new provider.

Octopus found in some cases the new deal was £90 more expensive than if the user had gone direct. It also had exit fees included whereas there were none if the bill payer had gone direct.

A spokesperson for energy regulator Ofgem said: “We’re grateful to Octopus for bringing this issue to our attention and are considering their findings.

"We expect both suppliers and third-party switching services to act in customers’ interests and make sure they communicate clearly. We’ll continue to work with industry, consumer groups and charities to ensure these rules work to protect consumers.”