DRIVE AWAY
Major update in car finance mis-selling scandal that could see drivers owed £1,000s
A HUGE update in the car finance mis-selling scandal has been issued.
The Financial Conduct Authority (FCA) has been carrying out an investigation into whether motorists were unknowingly overcharged on historical loans.
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Those who bought a car, motorbike or van on finance before January 28, 2021, could be owed potentially thousands of pounds.
The FCA is in the process of finding out how many motorists have been affected and what compensation customers will receive.
Today, in an "unexpected" decision in one of the motor finance test cases, a court has sided with drivers against the banks and lenders.
The Court of Appeal ruled that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment.
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The judgment said that in order for consent, the consumer would need to be told all material facts that might affect their decision, including the amount of the commission and how it was to be calculated.
The judges ruled that did not happen in any of these cases.
Three cases were merged earlier this year, the Hopcraft case is against merchant banking group Close Brothers, Wrench is against South African Firstrand Bank, and Johnson is against Firstrand Bank and Motonovo Finance.
The court revealed today that it has unanimously allowed all three appeals.
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The repercussions of today's judgment are expected to resonate throughout the motor finance sector.
The FCA is thought to be closely watching the development as it continues its investigation into the scandal.
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"This ruling is a massive win for consumer justice," said Sam Ward, Director at Sentinel Legal, a consumer rights law firm.
"For too long, lenders have taken advantage of consumers through complex, unfair finance deals. This decision finally puts power back into the hands of consumers, forcing banks to face the consequences of their actions."
While Stephen Haddrill, director general of the FLA, which represents motor finance lenders said: "This is a significant and unexpected judgment, the implications of which stretch far beyond the motor finance sector, making it an issue that demands the immediate attention of the FCA."
What is the FCA investigating and who is eligible for compensation?
What is being investigated?
The FCA announced in January that it would investigate allegations of "widespread misconduct" related to discretionary commission agreements (DCAs) on car loans.
When you buy a car on finance, you are effectively loaned the value of the car while you pay it off.
These loans have interest payments charged on top of them and are often organised on behalf of lenders by brokers - usually the finance arm of a dealership.
These brokers earn money in the form of commission - a percentage of the interest payments on the loan.
DCAs allowed brokers to, to a certain extent, increase the interest rate on a loan, which in turn increased the amount of commission they received.
The practice was banned by the FCA in 2021.
Who is eligible for compensation?
The FCA estimates that around 40% of car deals may have been affected before 2021.
There are two criteria you must meet to have a chance at receiving compensation.
First, you must be complaining in relation to a finance deal on a motor vehicle (including cars, vans, motorbikes and motorhomes) that was agreed before January 28 2021.
Second, you must have bought the vehicle through a mechanism like Personal Contract Purchase (PCP) or Hire Purchase (HP), which make up the majority of finance deals and mean you own the vehicle at the end of the agreement.
Drivers who leased a car through something like a Personal Contract Hire, where you give the car back at the end of the lease, are not eligible.
The FCA had intended to publish the outcome of its investigation in September.
However the publishing date has been pushed back to May 2025 and the date firms have to respond to customer complaints to December 4, 2025.
The FCA says it has had to push back the deadline due to it taking "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.
It's worth nothing, the FCA's decision to extend the deadline to December 4 next year is just when firms have to have respond to any complaints.
Customers can still complain to their providers before this point, and in some cases, there are time limits for doing so.
You can find more information about any time limits on the FCA website.
What is the Car Finance Discretionary Commission Scandal?
The Car Finance Discretionary Commission Scandal affects those who bought a car, motorbike or van on finance before January 28, 2021.
After this date, the city watchdog the FCA banned lenders from using "discretionary commission arrangements" (DCAs).
DCAs allowed brokers to increase interest rates on car finance loans, which in turn saw their commission bumped up.
It has been classed as an unfair practice because drivers weren't told about the DCAs and therefore thought any deals were a fixed price that they couldn't negotiate on.
Anyone who took out a vehicle on finance before January 28, 2021, could have been unfairly paying more than they should have.
The FCA has now launched an investigation to see how many people have been impacted.
MSE's website has a useful checklist on who might be in line for money back.
It also has a list of firms that are unlikely to have handed out dodgy deals and therefore don't owe customers money.
How to claim
Consumer website MoneySavingExpert.com has a page on its website with an email template you can use to complain to your firm.
Or, you can complain directly to them without using the template.
In the complaint, you should ask whether you were overcharged due to your broker getting paid a commission and ask the company to correct this if that is what happened.
If you're not satisfied with the company's response, you can take your complaint to the Financial Ombudsman Service (FOS) for free.
You have until July 29, 2026, or up to 15 months from the date of their final response letter, whichever is longest.
Be wary of using a claims management firm to help you claw back any overpaid car finance as you'll have to pay it a portion of any successful claim.
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The FCA has previously said the total cost of redressing motorists impacted by the car finance scandal could cost firms between £6billion and £16billion.
It means affected customers could get potentially £1,000s back in overpayments.
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