If you bought a car, van, or motorbike on PCP or Hire Purchase before January 28, 2021, you might be owed thousands due to hidden, unfair car finance commissions investigated by the FCA.
The Financial Conduct Authority (FCA), the regulatory body overseeing financial services in the UK, has initiated a significant investigation into concealed and unjust car finance commission practices. This inquiry has the potential to result in the repayment of billions of pounds in overcharged interest to millions of consumers.
Although there is currently a temporary halt on firms addressing complaints, it is imperative to register your complaint promptly to minimise the risk of being excluded due to timing constraints.
Approximately 40% of car finance transactions involved covert 'discretionary commission arrangements.' These arrangements allowed lenders to permit brokers and car dealers to inflate interest rates to augment their commission, resulting in consumers unknowingly overpaying.
In January 2021, the FCA prohibited 'discretionary commission arrangements' (DCAs). This prohibition aimed to prevent lenders from authorizing brokers, including car dealers, to raise interest rates on car finance, thereby increasing their commission, even though they contributed little to the process. This practice was deemed unfair, as consumers were often unaware of it, and many presumed the price to be fixed, hence refrained from negotiating.
On January 11, 2024, the FCA launched a comprehensive investigation into these practices. The public announcement of such a wide-ranging investigation suggests that the FCA already possesses substantial evidence. Presently, the focus is on compiling evidence at the firm-by-firm level using the FCA's enhanced investigatory powers.
It is anticipated that upon completion of the investigation, tentatively scheduled for September, the FCA will institute some form of large-scale compensation scheme. Although there is a slim possibility of a different outcome, it is prudent to prepare for the establishment of such a scheme. This guide is structured accordingly, providing a straightforward complaint process rather than the more intricate route of litigation, which typically necessitates legal assistance.
While extensive research has been conducted and discussions held with regulators, legal experts, and lenders, it is important to acknowledge that this endeavour is still in uncharted territory.
The FCA has extended the duration during which motor finance firms can handle complaints regarding discretionary commission arrangements, pending the investigation. Although firms are encouraged to address complaints, they are not obligated to make decisions until the FCA publishes its findings, currently slated for September 25, 2024, with a possibility of extension. Further information on discretionary commission arrangements can be found on the FCA's consumer assistance resources.
Despite the FCA's temporary suspension, we advise registering a complaint promptly to mitigate the risk of exclusion should a future time limit be imposed. Additionally, a time-stamped complaint may prove beneficial in potential future litigation scenarios.
It remains uncertain whether claims will be processed collectively or individually once the suspension is lifted, potentially leading to additional procedural complexities as the investigation unfolds.
Are you likely to be affected?
The FCA estimates that 95% of car finance agreements involve a commission structure, with 40% featuring 'discretionary commission arrangements.' If your agreement included these and it was not transparently disclosed—which was often the case—you are likely eligible for reimbursement once the FCA completes its investigation and resumes processing complaints (currently anticipated for September 25, 2024, subject to extension). Please review the checklist below to ascertain if you are likely affected:
This pertains to individuals who financed the purchase of a motor vehicle, encompassing cars, vans, campervans, and motorbikes.
The finance agreement must have been established before January 28, 2021 (and likely after April 2007). Eligibility criteria include:
Individuals with active agreements.
Those whose agreements concluded within the last six years.
Potentially individuals who raise complaints within three years of discovering the issue, considering its recent public exposure.
Hence, expeditious complaint submission is advised to minimize the risk of exclusion due to time constraints.
It is highly probable that complaints regarding agreements preceding April 6, 2007, may not be entertained, as the Financial Ombudsman assumed jurisdiction over motor finance complaints from that date onwards. Detailed rules are expected to be delineated upon conclusion of the FCA's investigation.
The vehicle must primarily serve personal, not business, purposes. While commuting is considered personal use, frequent business usage or business payments may render the agreement ineligible.
Certain vehicles financed through business agreements may be included, provided they are predominantly utilised for non-business purposes and funded through a regulated credit agreement valued under £25,000. It is important to note that the £25,000 cap solely pertains to business agreements, with no such limitation imposed on personal finance agreements.
Claims can be filed on behalf of deceased individuals, though lenders typically require a copy of the will and grant of probate to ensure accurate disbursement of compensation.
This encompasses Personal Contract Purchases (PCP) and hire purchase agreements, allowing reclaim even if the agreement has been settled or the vehicle repossessed.
Submitting a claim is permissible even if a separate claim for diesel emissions has been lodged, as these are distinct issues.
Excluded from the investigation are Personal Contract Hire agreements and interest-free finance, as genuine 0% interest deals do not involve 'discretionary commission arrangements.'
Individuals with multiple eligible car finance agreements may be entitled to multiple reimbursements, with each case treated individually.
While static caravans are not covered, alternative avenues may exist for complaints regarding other forms of car finance mis-selling. This guide specifically addresses discretionary commission mis-selling.
The involvement of hundreds of firms underscores the widespread nature of this issue, encompassing both brand-specific and generalist car finance providers. If you entered into a PCP or HP contract before January 28, 2021, it is advisable to ascertain potential eligibility.
How To Claim
One option of claiming is to use a no win, no fee claims management service. If you would rather do this click here to make a car finance claim.
Alternatively, you can take the time to do it yourself. Upon gathering relevant documentation and information pertaining to car finance agreements, users can check whether they are likely eligible using Money Saving Experts complaint tool or the enquiry forms launched by select firms.
For individuals lacking specific details, checking their credit report or old bank statements may provide relevant information. In cases where the finance provider's name is known but agreement details are not, contacting the provider for clarification is recommended. However, firms are only obligated to retain information on finance agreements for six years post-agreement termination.
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