Car dealership where car finance loans would be agreed

New research estimates over 800,000 car finance compensation claims

Figures from ITV News show car loan companies are likely to face compensation claims from hundreds of thousands of customers

Over 900,000 drivers could be owed around £1,100 for mis-sold car finance deals taken out before January 2021.

The financial regulator is currently investigating whether car finance customers are owed compensation for being charged too much for car loans.

One month into the regulator’s market review, a new ITV News investigation shows 866,400 claims or initial enquiries are already underway, which could lead to billions of pounds in compensation. 

Consumer Voice co-founder, Alex Neill, who featured as part of the ITV News investigation, said:

‘My advice to anyone who had car finance before 2021 is to get your complaint in now. There’s no reason to delay. It’s quick, easy and free to do with templates like ours.

‘You just need to be aware that you’re unlikely to get a final decision quickly. All providers have been given until after the regulator finishes its investigation to respond, which is expected to be at the end of September this year.’

Comparisons are being drawn with the multi-billion-pound PPI mis-selling scandal. It is suggested that the regulator may decide to bring in a similar scheme of redress to deal with car finance.

Alex shares her top tips if you think you might be eligible to claim

The problem with ‘discretionary commission’

The Financial Conduct Authority (FCA) banned the use of ‘discretionary commission’ in 2021, estimating it could be costing consumers £165 million a year. 

Before the ban, car brokers (the person who arranges your loan) were allowed to set or adjust the interest rates they offered customers for car finance.

Car dealers were paid higher commission – known as a ‘discretionary commission arrangement’ – if they arranged a higher interest rate with their customers. This meant that car brokers had an incentive to increase how much people were charged for their car loan.

Have you paid too much for car finance?

It’s free and straightforward to check with your car finance company whether you had a discretionary commission agreement. This could leave you eligible to claim compensation.

Our car finance guide gives you step-by-step advice for claiming car finance compensation if you suspect the interest you agreed on a loan was too high. 

Start by signing up to Consumer Voice for our template letter to check if you had a discretionary commission agreement.

Car loan firms deny customers were treated unfairly

The 2021 ban led to high levels of compensation claims against motor finance firms from customers who are worried about how much they were charged. 

The FCA has said that motor finance firms are ‘rejecting most complaints because they consider that they have not acted unfairly nor caused their customers loss.’ 

The ITV News investigation featured Adrian Dally, one of the sector’s most senior spokespeople from the Finance and Leasing Association, who denied that misselling was widespread. He said the majority of agreements ‘involved interest rates going down not up.’

The Financial Ombudsman Service (FOS) has seen an increase in car financing commission claims since the 2021 ban. It has found in favour of complainants in some of these claims.

The regulator is stepping in to use its powers under the Financial Services and Markets Act 2000 to review motor finance commission arrangements and sales prior to the ban. 

It has said it will ensure consumers are paid what they’re owed if it finds ‘widespread misconduct’. 

ITV News has more information on what to do if you think you’ve been mis-sold car finance.

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