1 million may have car loan compensation claims – find out if you could be owed
Up to a million motorists may be entitled compensation after buying cars or vehicles using loans charging unfair interest rates.
More than 850,000 claims have been registered and news that Lloyds Bank is setting aside £450m in potential charges will fuel further claims, legal experts warned. Lloyds owns Black Horse, one of the UK’s biggest car finance firms.
MoneySavingExpert’s Martin Lewis has highlighted the loan compensation claims, saying he believes millions of consumers may be due payouts. He has likened it to the £50bn Payment Protection Insurance mis-selling scandal.
Interest has sharpened since the UK finance watchdog the Financial Conduct Authority (FCA) announced last month it was investigating the motor finance sector amid rising tensions between thousands of consumers and finance providers about commission arrangements.
Before it was banned in 2021, lenders providing car finance allowed car dealers to set their own interest rate on repayment deals – known as discretionary commission arrangements (DCA). Car dealers could undercut the banks’ preferred rate to secure a deal but were also permitted to increase it and boost their commission.
The FCA banned the practice after its researchers found the discretionary commission deals could cost customers more per year than alternative flat-fee interest rate deals. The discretionary model could result in buyers typically paying an additional £1,100 in interest charges on a £10,000 loan.
It launched its latest investigation after discovering mounting concerns that motor finance firms may be unfairly rejecting mis-selling claims from borrowers who believed they were sold a car finance contract that was more expensive because their dealer stood to earn a commission by charging more.
“If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way,” the FCA said in a statement. Experts say a formal redress scheme is the likeliest outcome if misconduct has been found.
The regulator extended the time firms have to respond to claims, meaning that the response deadline is 25 September, 2024. It is expected to outline any redress proposals later in the autumn.
The FCA has approached several banks about their car lending business.
Charlie Nunn, Lloyds chief executive, said he welcomed the FCA investigation. “The extent of any misconduct or loss on behalf of customers, if any, remains unclear, so we welcome the FCA’s announcement a few weeks ago to look in to this to provide clarity for customer and the industry,” he told the BBC.
The bank group Close Brothers has also announced it has suspended its shareholders’ dividend because of uncertainty about the impact of a regulatory probe into motor financing deals. The 146-year-old merchant bank also offers car financing to more than 4,000 car dealers across the UK.
Consumers who bought a car or other vehicle for personal use using a loan before 27 January, 2021 are advised to make a complaint to the company if they think they could have been charged unfair rates. That applies even if the agreement is over and monies paid. It doesn’t apply to people who got interest-free credit to make the purchase.
Any complaint should be made to the lender that provided the car finance, not the dealer.
MoneySavingExpert.com has created a way for people who think they might have been overcharged interest on a car, van or motorbike bought on finance before 28 January, 2021. Mr Lewis said 262,500 complaint emails were sent after just one day of the tool being launched.
Experts estimate the wider sector’s total compensation bill could reach anywhere between £9bn to £16bn. Not all claims will be valid with many finance companies denying they’ve ever used DCA deals. Others used them to offer lower rates or sold the vehicles using interest-free credit.
Stephen Haddrill, director general of the Finance and Leasing Association, which represents motor finance companies, has said they welcomed the FCA inquiry. “The announcement will ultimately provide certainty for firms and customers after a period where speculative and unfounded complaints issued by claims management companies have congested what should be a smooth, prompt and clear process.
“We will work with the FCA over the coming months to resolve this issue.”
