The UK’s financial regulator is currently reviewing whether people could be owed compensation for being charged too much for car loans, with millions of claims potentially being lodged
Millions of claims could be lodged by drivers who may have overpaid on their car finance, as the emerging issue has the potential to be “on par” with the PPI scandal, a consumer compensation expert has said.
The UK’s financial regulator is currently reviewing whether people could be owed compensation for being charged too much for car loans. It is looking into hidden and unfair commission arrangements on loans taken out between 2007 and 2021.
Simon Evans, head of the Consumer Redress Association, which represents claims management firms, said that many people would have bought more than one car during that period, potentially doubling the number of claims. This news follows consumer guru Martin Lewis revealing earlier this month that 1.1 million people had lodged complaints via a free tool on his MoneySavingExpert.com website.
He called the number of complaints “staggering” and suggested that car finance mis-selling could be the “second biggest reclaim payout in UK history”, following the PPI scandal. The PPI scandal saw UK banks paying out billions in compensation to customers who were mis-sold personal protection insurance from the mid-1990s.
Mr Evans believes that the scale of those affected by the car finance issue could be “on par” with PPI. He said: “If you think about the number of people who have bought cars in the last decade-and-a-half, there is a swathe of people who will have bought it in that way,” he said, referring to the discretionary commission arrangements.
“What we are seeing through our member firms who are engaging with consumers at the moment is that actually each person has an average of about 2.3 claims. So they have had two or three cars in that period and all of those qualify for a claim.” This is likely to cause a “large headache” for car finance companies, Mr Evans said.
But he added a “note of caution on the good work Martin Lewis is doing”, suggesting that while many people will have downloaded the template complaint letter, it may not mean that they will all have taken the next step of sending it to their lender.
Meanwhile, the chief executive of the Financial Conduct Authority (FCA), Nikhil Rathi, recently downplayed comparisons with the long-running PPI redress. He said he did not anticipate the car finance issue “playing out as PPI did”, partly because the watchdog has intervened earlier.
Lloyds Banking Group, which owns Black Horse, the UK’s largest car finance lender, said last month it was setting aside a provision of £450million to cover potential costs related to the FCA’s review. That includes the potential compensation for consumers as well as administration costs in dealing with complaints.
Close Brothers Group, which includes a motor finance division, has announced plans to strengthen its finances by £400 million in anticipation of the investigation’s impact. By the end of September, the watchdog is expected to reveal its next steps following the review.
