Millions of car and van buyers were left disheartened after a court dismissed paying compensation to motorists over hidden commission paid for car finance loans. Earlier this month the Supreme Court overturned a ruling that could have meant millions of motorists were due compensation for mis-sold car finance.
The UK’s highest court sided with finance companies in two out of three test cases, focusing on commission payments made by banks and other lenders to car dealers. The decision reversed previous court rulings that could have meant millions of motorists could claim compensation.
However many drivers who entered into a specific form of finance deal – a Discretionary Commission Arrangement (DCA) – may still be eligible for compensation. These loans could have their interest rate increased so the broker or dealer would get more commission and affected some Personal Contract Purchase (PCP) and Hire Purchase agreements up to 2021.
Martin Lewis has issued advice on the Money Saving Expert website which he founded. And he advised people there was “no harm” in putting in a claim in case they were successful.
He told followers: “In recent weeks, I’ve been saying ‘do nothing’ as there was so much uncertainty. Now we’re on a firmer base, on the back of what the regulator says, there’s no harm in putting in a complaint to see if you had a DCA. Just do it yourself and use our free complaint tool.” He added: “This may be particularly beneficial in old cases, where you have the details of your car finance but the car finance firm may have deleted it – as this way you put a marker in that you want your case looked at (though again, specifics of this are up in the air).
“In newer cases, complaining now is more about the fact many want to know if they had a DCA and whether they may be due compensation or not. So if you don’t want the hassle, you likely wouldn’t lose out by not putting one in at this point, so could just wait.”
The expert issued his advice after the Financial Conduct Authority confirmed it will hold a consultation on a redress scheme on hidden car finance commission claims. This follows evidence that some motor dealers were getting commission from banks or finance organisations which provided the loan, with the commission level potentially linked to higher interest rates.
The FCA said it will consult on implementing a payout scheme which is estimated to cost between £9bn and £18bn. The authority said it was “hard to estimate precisely at this stage the total cost to industry of the scheme”, but it is thought millions could be eligible.
It issued guidance for individuals affected by car finance mis-selling, stating that those who have already lodged complaints need not take further action. The FCA advises those who haven’t yet complained to approach their car loan provider directly, rather than employing the services of a claims management company.
Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.” He added: “Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get. It will take time to establish a scheme but we hope to start getting people any money they are owed next year.”
The controversy surrounding car finance mis-selling dates back to 2021 when the FCA prohibited dealer credit agreements (DCAs) that allowed dealers to earn commissions from lenders based on the interest rate charged to consumers. The FCA identified that DCAs incentivised dealers to impose unnecessarily high-interest rates, resulting in customers overpaying.
Since January, the FCA has been deliberating on whether to issue compensation to individuals who entered into these agreements prior to 2021. The FCA plans to launch a consultation in October to determine eligibility criteria for compensation and the amount to be awarded, noting that a recent Supreme Court decision has provided “clarity” on the matter.
