Car finance scandal: 23 million UK drivers expect compensation as trust in lenders collapses

New research reveals the depth of consumer mistrust, and the urgent need for a fair and transparent redress scheme

More than 23 million people across the UK believe they could be owed compensation for mis-sold car finance – and with a major Supreme Court ruling expected this month, the pressure is mounting on regulators to deliver justice.

The new polling, commissioned by law firm Slater and Gordon, shows that 45% of UK adults believe they are likely to be eligible for compensation over motor finance deals taken out between 2007 and 2021.

Millions of car loans sold during this period are likely to have involved discretionary commission arrangements (DCAs). This involved some car dealers overcharging unsuspecting customers over a thousand pounds in interest charges in return for bigger commission payouts.

The regulator estimated this to be costing consumers £300 million annually – and banned this practice in 2021. It is now moving closer to a redress scheme to compensate car finance consumers mis-sold car finance involving DCAs.  

“People are rightly concerned about the use of secret commissions in car finance. Millions of drivers feel misled and have suffered financial harm – so it’s no surprise that public expectations for compensation are high,” said Alex Neill, co-founder of Consumer Voice.

However, many more people could be owed compensation. We found that over half (52%) of people taking out car finance loans before the 2021 ban still don’t know whether their dealer received commission from their lender, despite the high profile coverage of this issue.

Neill added: “Our own research shows that two-thirds of consumers would have acted differently if they had known about dealer commissions, and many remain concerned about how those commissions impact what they pay”

With the regulator and courts already finding systemic failures to disclose key information that could affect their borrowing decision, including the total commission paid to car dealers and how it was calculated, the scope of redress could be vast – but the way it’s handled will be critical. 

Elizabeth Comley, chief operating officer at Slater and Gordon, said:

“The public rightly expects to be compensated for losses. While the FCA is trying to put things right, there’s a risk that a redress scheme leaves many people disappointed and keen to challenge the process.  

“That sort of backlash would be bad for everyone – the scandal would drag on for years, the courts would be inundated with challenges and the public would be denied the clear resolution they want.” 

Consumer Voice: Trust in car finance has been shattered

Our own investigations show that the structure, practices and behaviours in the car finance market is  unique and has led to consumers being left particularly vulnerable and poorly protected:

• Only 4% of consumers told us they shopped around for finance
• Two-thirds trusted their dealer to find them the best deal; often unaware of hidden commissions
• Over 90% remain concerned about how commission structures affect what they pay
• 75% said they would have made a different decision if commissions had been clearly disclosed

“Most people trust their dealer to get them the best deal; often unaware that the finance offer in front of them may not be the most competitive, or assuming the dealer only profits from selling the car itself,” said Neill.

“Unlike other financial products, this misplaced trust means consumers rarely shop around – just 4% of people compared finance options before signing a deal.”

Law firm polling highlights widespread mistrust of lenders

The Slater and Gordon poll of over 4,000 UK adults shows deep scepticism about how redress will be handled:

• Only 23% trust banks and lenders to check their own records and issue compensation fairly
• 43% of people who believe they are entitled to compensation have some characteristic of vulnerability
• 57% of those who believe they’re owed compensation have moved since taking out their loan – potentially making them untraceable to lenders
• 36% have lost paperwork, and 13% have changed their legal name during the period in question
• 40% of people say they would consider legal action if redress is inadequate

Despite this, the Financial Conduct Authority (FCA) is considering a redress approach that would give lenders the power to determine eligibility for compensation, potentially cutting out legal or third-party support.

Slater and Gordon is asking the FCA to allow consumers to have the option of using professional legal representatives in any redress scheme, should they want to. Comley asks: “Why shouldn’t people have this option if they want it?”

“The best way to ensure a redress scheme works well for everyone and resolves this scandal swiftly is to allow people the choice to hire a lawyer to support their claim,” she added.

“Independent professional lawyers work to assemble documents and evidence, pursue people’s rights and ensure they get what’s due to them.”

“A redress scheme must be fair – or it will fail”

Consumer Voice and others are calling on the FCA to prioritise fairness, clarity and consumer choice.

“Any redress scheme must tackle drivers’ legitimate distrust of lenders and be built with fairness to consumers at its core,” said Neill.

“People must be given choice and clear information about their options and the compensation they can expect to receive. 

“Resolving claims quickly is in everyone’s interest – but it must not come at the expense of people being denied proper access to justice.”

Slater and Gordon share these concerns. Comley warned that mishandling this issue could lead to widespread backlash.

“The public will not support putting decisions on redress in the hands of the lenders responsible for mis-selling – people just don’t trust the wrongdoers to decide who gets compensation,” she said.

“An FCA redress scheme that relies on the lenders responsible for mis-selling to identify people who get compensation would mean many people miss out, perhaps because they have moved address or changed their name and the lenders can no longer find them.  That would be unacceptable and fuel public cynicism.”

This is further reinforced by the finding that more than four in ten people who believe they are entitled to compensation have some characteristic of vulnerability.

What’s next for car finance compensation?

Two million new and used cars are bought on finance every year. With public scrutiny intensifying and more than 30 million car finance agreements from 2007-2021 under the spotlight, how the regulator responds could affect millions of households.

The Supreme Court is expected to rule this month on the scope of responsibility for mis-selling in car finance deals. This will shape the FCA’s next steps and determine whether a formal redress scheme is launched.

Barclays was also back in court last week seeking to overturn a key High Court ruling that upheld a Financial Ombudsman Service decision about an undisclosed discretionary commission payment of £1,600. 

The Court of Appeal decided to put this appeal on hold until the Supreme Court judgment is made. Consumer Voice has been given permission to intervene in this case. We have submitted written evidence that will be considered by the judges when the case is back in court in the Autumn.

Know your rights. Claim what you’re owed

Don’t be left in the dark if you suspect you were not informed about the commission fee – and, as a result, may have not got the best deal possible on your car finance. 

Contact your dealer or lender to check if your deal involves a commission arrangement. Acting now could help you understand more about what you could be owed when the regulator makes a decision about compensation. 

Use our free template letter to help you make your complaint to your lender or read our guide to understand your rights.  

Stay updated on car finance compensation

Consumer Voice is free to use, independent and we tell consumers when the companies they buy from have broken the law. We help people easily work out whether they’re entitled to compensation and how to claim.

Stay updated on the very latest news and investigation on the car finance scandal and compensation. More from Consumer Voice:

• Car finance customers kept in the dark over secret commissions 
• Top court stops Consumer Voice intervening in mis-sold car finance appeal 
• Car finance dealer trust broken as compensation nears 
• Car finance: what consumers want 
• Car finance: the incentives dealers don’t want to tell you about
• Supreme Court poised to decide the fate of car finance customers in landmark case 
• Supreme Court concludes pivotal hearing on motor finance commissions