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What's behind car finance mis-selling complaints? Car loan scandal payouts row - what's it about?
(7 days later)
People mis-sold finance agreements when buying cars could wait months for a decision on whether they should receive compensation.People mis-sold finance agreements when buying cars could wait months for a decision on whether they should receive compensation.
A decision by judges at the Court of Appeal has blown open an ongoing saga into hidden commission payments, with buyers possibly in line for payouts totalling billions of pounds.A decision by judges at the Court of Appeal has blown open an ongoing saga into hidden commission payments, with buyers possibly in line for payouts totalling billions of pounds.
But the higher Supreme Court has now agreed to hear an appeal against the decision.But the higher Supreme Court has now agreed to hear an appeal against the decision.
The Financial Conduct Authority (FCA) has also given more detail about plans to allow dealers extra time to deal with complaints. The Financial Conduct Authority (FCA) has also allowed motor finance providers extra time to deal with complaints.
It is consulting on two options, either extending the deadline to the end of May or until December 2025.
Lawyers acting for motorists say this could further delay compensation which should be paid to car buyers who may not have given their informed consent for the commission payments.Lawyers acting for motorists say this could further delay compensation which should be paid to car buyers who may not have given their informed consent for the commission payments.
Who may be in line for payouts?Who may be in line for payouts?
The vast majority of new cars, and many second-hand ones, are bought with finance agreements.The vast majority of new cars, and many second-hand ones, are bought with finance agreements.
About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.
In a complicated, and long-running, series of developments, many of these agreements have come under scrutiny.In a complicated, and long-running, series of developments, many of these agreements have come under scrutiny.
In 2021, the FCA banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. It said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate.In 2021, the FCA banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. It said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate.
Since January, it has been considering whether compensation should be paid to people with these deals before 2021.Since January, it has been considering whether compensation should be paid to people with these deals before 2021.
That has created the prospect of banks and other lenders having to make payouts totalling millions of pounds.That has created the prospect of banks and other lenders having to make payouts totalling millions of pounds.
Last month, a decision at the Court of Appeal broadened the net of those who could receive compensation, potentially increasing the lenders' final bill to billions of pounds.Last month, a decision at the Court of Appeal broadened the net of those who could receive compensation, potentially increasing the lenders' final bill to billions of pounds.
Why was the judges' decision so important?Why was the judges' decision so important?
While the initial investigations surrounded discretionary commission arrangements, which were banned in 2021, the Court of Appeal decision widened the scope to any car finance commissions.While the initial investigations surrounded discretionary commission arrangements, which were banned in 2021, the Court of Appeal decision widened the scope to any car finance commissions.
The three judges unanimously agreed that it would be illegal for the lender to pay any commission to the dealer without the informed consent of the buyer.The three judges unanimously agreed that it would be illegal for the lender to pay any commission to the dealer without the informed consent of the buyer.
In other words, customers should be clearly told how much commission would be paid, and agree to it, without those details being buried in the terms and conditions of the loan.In other words, customers should be clearly told how much commission would be paid, and agree to it, without those details being buried in the terms and conditions of the loan.
The test case involved Marcus Johnson, 34, who bought a Suzuki SwiftThe test case involved Marcus Johnson, 34, who bought a Suzuki Swift
The hearing included the test case of Marcus Johnson, 34, from Cwmbran, Torfaen, who bought his first car - a Suzuki Swift - in 2017.The hearing included the test case of Marcus Johnson, 34, from Cwmbran, Torfaen, who bought his first car - a Suzuki Swift - in 2017.
He was not informed the car dealership was being paid 25% commission, which was added on to what he had to pay back.He was not informed the car dealership was being paid 25% commission, which was added on to what he had to pay back.
"I signed a few documents and then drove away in the car," he told the BBC."I signed a few documents and then drove away in the car," he told the BBC.
He said he had no option but to use finance when he bought the car, describing it as "heartbreaking" to find out so much extra money had been taken.He said he had no option but to use finance when he bought the car, describing it as "heartbreaking" to find out so much extra money had been taken.
"Someone in my situation at that time, not being able to buy that kind of age car with cash, you would use finance," he said."Someone in my situation at that time, not being able to buy that kind of age car with cash, you would use finance," he said.
Following the judges decision in his - and two other car buyers' - favour, banks have set aside millions of pounds for potential compensation. Other lenders have temporarily paused any new deals.Following the judges decision in his - and two other car buyers' - favour, banks have set aside millions of pounds for potential compensation. Other lenders have temporarily paused any new deals.
It's thought the total cost of compensation could reach £25bn, according to analysts.It's thought the total cost of compensation could reach £25bn, according to analysts.
How has the regulator responded?How has the regulator responded?
The FCA said that the decision could lead to dealers receiving a deluge of new complaints. The FCA said that the decision could lead to dealers and motor finance providers receiving a deluge of new complaints, and it is urging people to make a claim, external if they feel they were the victims of mis-selling.
Some could come from people previously told they had no claim for compensation because they did not have a discretionary commission arrangement.Some could come from people previously told they had no claim for compensation because they did not have a discretionary commission arrangement.
The regulator is consulting on extending the time car dealers will have to respond to complaints. The regulator has extended the time providers have to consider complaints until December 2025, aligning the deadline for firms to deal with discretionary and non-discretionary arrangement complaints.
The two options are: The time period covers claims regarding leasing deals, as well as Personal Contract Purchase (PCP) agreements.
Giving dealers until the end of May to deal with complaints The FCA also wants the Supreme Court to make a quick decision when it reconsiders the Court of Appeal's ruling.
Allowing them until December 2025 to respond, to align the deadline for firms to deal with discretionary and non-discretionary arrangement complaints
It also wants the Supreme Court to make a quick decision when it reconsiders the Court of Appeal's ruling.
It wants an orderly compensation system, if it comes to that.It wants an orderly compensation system, if it comes to that.
The Finance and Leasing Association, the trade body for motor finance providers, described the FCA's plan as a "sensible move". The Finance and Leasing Association, the trade body for motor finance providers, welcomed the extension.
However, others have questioned whether it creates a further compensation delay for those who were mis-sold these agreements.However, others have questioned whether it creates a further compensation delay for those who were mis-sold these agreements.
Get in touchGet in touch
Have you been turned down for compensation relating to a car finance deal? Share your experiences.Have you been turned down for compensation relating to a car finance deal? Share your experiences.