Millions more drivers could be owed compensation in car finance mis-selling scandal as FCA issues major update
MILLIONS more drivers could be owed compensation in a car finance mis-selling scandal after a landmark legal case.
Lenders are set to be given more time to look at complaints after a court decision opened the floodgates to more claims.
The Financial Conduct Authority (FCA) launched an investigation at the start of the year into whether motorists were unknowingly overcharged when they took out a loan to buy a car.
This focused on Discretionary Commission Arrangements (DCAs) which gave dealerships an incentive to push customers towards pricier financing deals.
Those who bought a car, motorbike or van on finance before January 28, 2021 (when DCA was banned) could be owed thousands of pounds.
Now the regulator has set out plans today to extend the deadline by which lenders have to respond to complaints.
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It follows a Court of Appeal ruling last month that a broker could not lawfully receive a commission from the lender without obtaining the customer’s fully informed consent to the payment.
The decision applies to more types of commission and not just DCA, meaning more drivers could be owed cash.
The FCA said firms are likely to receive a "high volume" of complaints following the judgment and that an extension is needed to deal with claims.
Close Brothers and Firstrand, the subject of the case, intend to appeal the Court of Appeal’s decision.
The watchdog also said it will write to the Supreme Court asking it to decide quickly whether it will permit lenders to appeal.
In a statement published this morning, the FCA said: "Any complaint extension would allow them time to consider how these might be efficiently and effectively handled.
"This would help prevent disorderly, inconsistent and inefficient outcomes for consumers making complaints, motor finance firms and the market."
Proposals are expected to be published in two weeks, which would mean the complaint extension is in place by mid-December.
Following the news today Money Saving Expert Martin Lewis has weighed in on what it means for drivers.
Writing on X, formerly known as Twitter, he said: "It signals that the FCA is paving the ground to in future broaden the scope of its car finance investigation, so not only at the 40% of past claims that had DCAs (where dealers could increase their commission by increasing interest) but all commissions including fixed commissions."
What is the FCA investigating and who is eligible for compensation?
By Jacob Jaffa, Motors Reporter
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.
Martin also said that it essentially means that "almost everyone" who has had car finance deals may have a complaint and be due money back.
He explained: "This potentially more than doubles the number of people involved, and would really start to look more like PPI scale of payouts (and a substantial threat to the car finance industry)."
The Payment Protection Insurance (PPI) scandal saw 16.5million people handed payouts totalling £38.3billion after banks and other financial institutions mis-sold PPI policies to millions of customers between 1990 and 2010.
The FCA has been unable to confirm how many people will now be possibly owed cash.
Alex Neill, co-founder of consumer rights group Consumer Voice said: "The financial regulator has signalled it will allow motor finance providers more time to consider how to deal with complaints about all secret commissions, not just those that are discretionary.
"This is big news for consumers as it could mean significantly more money is owed to more people."
"Anyone who has already been told by their finance provider they didn’t have a discretionary commission on their loan should now be asking if any commission at all was applied. If it was, they may be owed compensation."
Delayed investigation outcome
The FCA had planned to publish the outcome of its investigation in September.
However the publishing date has been pushed back to May next year and the date firms have to respond to customer complaints to December 4, 2025.
It's worth nothing, the FCA's decision to extend the deadline to December 4 next year is just when firms have to 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.
Among the major lenders which could be set to pay out compensation are Lloyds Banking Group, Bank of Ireland, Investec and Santander.
These banks are said to have set aside millions of pounds to help cover the costs of the payouts since the court case in October.
The Royal Bank of Canada has estimated that the industry’s bill for motor finance compensation could stretch to £13billion.
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.
It's important to note that anyone who took out car finance should make a claim.
Plus those who claimed previously but had it turned down before should try again.
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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