The FCA banned ”discretionary commission agreements” in 2021 but says there is a ”significant dispute” as to whether firms have breached legal and regulatory requirements
The financial watchdog is investigating whether car finance mis-selling complaints are being unfairly rejected and if consumers have “lost out” on compensation.
MoneySavingExpert.com founder Martin Lewis said the outcome could potentially mean millions of people who used car finance might be owed pay-outs. The Financial Conduct Authority (FCA) banned ”discretionary commission agreements” that let dealers choose the interest rates on loans in 2021. This type of model allowed car salesmen to get more cash by boosting their commission.
But since then, the FCA said “most” complaints relating to this practice before the ban was put in place are being rejected by motor finance firms because they feel they “have not acted unfairly”. The Financial Ombudsman has recently ruled in favour of two complaints, while claims have also been brought in the County Courts. The FCA said this is “likely to prompt a significant increase” in new cases being brought forward.
As a result, the FCA said it will now investigate if there has been “widespread misconduct” and if consumers have “lost out” as a result. The FCA said: “There is significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements.”
The FCA investigation will look at cars bought using car finance before January 28, 2021 and includes personal contract purchase (PCP) which is the most common type of car finance. It won’t cover leasing agreements, also known as personal contract hire (PCH).
Reacting to the news in a new post on X/Twitter, Martin Lewis said: “HUGE announcement from @theFCA this morning that has gone totally under the radar. It may mean a pay-out for millions who bought a car/van on Motor Finance before 2021. I’ve done back of the envelope numbers and at the top end this could be PPI type scale (that was £40bn).”
The FCA has today put a pause on the deadline for motor finance firms to reply to complaints while it investigates. Companies usually have eight weeks to issue a final response. The pause, which will last for nine months, applies against complaints received by firms on or after November 17, 2023 and on or before September 25, 2024.
However, Martin Lewis suggests you should still get your complaint in as soon as possible. Customers will also have up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual six months. Complaints that have already been escalated to the Financial Ombudsman will be looked at as normal.
Abby Thomas, Chief Executive and Chief Ombudsman, said: “When people take out a car loan it’s imperative they are treated fairly and the financial implications are totally transparent. Unfortunately, that is not always the case. We’ve heard from more than 10,000 people who fear they were charged too much for their finance, and we know many more are waiting in the wings.
“We’ve resolved two complaints where we found that the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer. Our decisions could signal the way forward for many more similar complaints that have not been resolved between firms and consumers.
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“That’s why I welcome the Financial Conduct Authority’s decision to assess this issue further. In the meantime, we’re totally committed to continuing to investigate cases with our service. If people are concerned about their car loans and are unhappy with how firms have responded, they can come directly to our free, independent service and we will investigate their complaint.”
