Major update to car finance compensation scandal that could see drivers owed £1,000s
A MAJOR update to the car finance compensation scandal that could see drivers owed £1,000s has been revealed.
The Financial Conduct Authority (FCA) began an investigation earlier this year into whether motorists were unknowingly overcharged when they took out car loans.
But the financial watchdog said this morning it wants the consultation to be extended to give lenders more time to respond to complaints.
Nikhil Rathi, chief executive of the FCA said that this is to "make sure that consumers who are owed money get it in an orderly way".
Currently, firms have until at least December 4 2025 to respond to complaints involving a discretionary commission arrangement.
The FCA is now consulting on extending the time they have to respond to complaints involving other types of commission.
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The investigation focuses on past practices where banks allowed car dealerships and brokers to set their own interest rates on loans.
Under this discretionary commission arrangement (DCA), the higher the interest rate charged, the more commission the dealer or broker earned.
However, many customers were unaware of this practice.
As a result, people who financed the purchase of a car, motorbike, or van before January 28, 2021 (when DCA was banned), may be owed significant sums of money.
It follows a pivotal Court of Appeal ruling found last month which found the practise unlawful.
The authority said lenders will need to use the additional time provided to ensure they have the "resources to investigate and issue final responses to complaints at the end of the extension".
It comes as a number of lenders have been gearing up to hand out thosuands because of the findings.
Just yesterday, Santander said it had allocated £295million to cover potential payouts for those who were missold car finance.
Llyods Banking Group has also set aside £450million to cover the cost of fines.
The FCA estimates that on a typical £10,000 motor finance agreement, higher broker commissions DCA could result in customers paying an additional £1,100 in interest charges over the four-year term of their loan.
However, the FCA has extended the deadline for lenders to respond to complaints, as borrowers whose lenders received other forms of commission may now be eligible for compensation.
HOW TO CLAIM
Consumer finance website MoneySavingExpert.com offers an email template to help you complain to your finance provider.
You can download this by visiting moneysavingexpert.com/reclaim/reclaim-car-finance.
Alternatively, you can complain directly without using the template.
It's crucial for anyone who took out car finance to file a claim, even if a previous claim was denied.
In your complaint, ask whether you were overcharged due to your broker receiving a commission and request the company to rectify this if it occurred.
If you're unsatisfied with the company's response, you can escalate your complaint to the Financial Ombudsman Service (FOS) at no cost.
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You have until July 29, 2026, or up to 15 months from the date of the company's final response letter, whichever is longer.
Avoid using a claims management firm, as they will take a portion of any successful claim.
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.