Car finance giants face legal claims of over £1bn for ripping off consumers

Around a million UK consumers could have unwittingly overpaid for car finance over a six year period.

*UPDATE: Since we published this story the Financial Conduct Authority has launched a major investigate whether car finance customers are owed compensation for being charged too much for car loans. It is looking at whether car finance customers are owed compensation for being charged too much for car loans and has said it will ensure consumers are paid what they’re owed if it finds ‘widespread misconduct’. Read our latest guide to understand what your options are for claiming car finance compensation.*

Three collective action lawsuits have been filed at the specialist competition court accusing the three largest car financing companies, Lloyds Banking Group, MotoNovo and Santander, of acting to inflate interest rates.

This anti-competitive conduct meant UK consumers were paying too much – to the tune of £1bn. They claim that consumers were charged higher interest rates when buying used cars on finance due to anti-competitive agreements between providers of car finance and dealers.

Doug Taylor, an experienced consumer advocate who filed the claims, said:

‘We believe that Black Horse Ltd (Lloyds Banking Group), MotoNovo and Santander took advantage of their customers. Affected consumers unknowingly paid more for their car loans because of the way these companies incentivised dealers.


What is wrong with the car finance agreements?

Between 2015 and 2021 car dealers or finance providers decided the level of commission they earned from arranging car finance for customers. This usually meant that the level of commission was tied to the interest rate. This practice of ‘discretionary commission’, which was used across the car financing industry, was banned by the financial regulator in January 2021. These car finance deals are said to have incentivised car dealers to charge consumers higher interest rates than they otherwise would have done, in order to receive a higher rate of commission.

Taylor, who is seeking to lead the claim on behalf of UK consumers, said:

‘With this legal action, I am standing up for people across the UK who have been affected by the actions of these companies, seeking justice and compensation for the financial losses they have suffered.’

Legal team behind the claims

Taylor is being supported by Scott + Scott, a global law firm which has already filed two other group claims, including on car delivery charges.

Belinda Hollway, Partner at Scott + Scott said:

‘We are proud to be working alongside Doug Taylor to seek justice for consumers across the UK who have been taken advantage of by these large finance companies, and to help them get back what they’re owed.’

The action is funded by Woodsford, a global litigation finance business. Charlie Morris, Chief Investment Officer for Woodsford, commented:

‘Litigation finance is fundamental to actions of this kind; it levels the playing field and provides consumers with equality of arms and affords access to justice so that companies like Black Horse Ltd., MotoNovo and Santander can be held to account for their misconduct.’

Who is eligible for compensation?

Anyone who entered into a car finance agreement with Black Horse (Lloyds Banking Group), MotoNovo Finance or Santander to purchase a used car between 01 October 2015 and 27 January 2021. Up to one million consumers may be affected.

Sign up to Consumer Voice to stay updated as the claim progresses. 

Investigation into the car financing industry

The practice of ‘discretionary commissions’ was banned by the Financial Conduct Authority (FCA) in January 2021 after investigations led to concerns that the model wasn’t in the best interests of consumers and pushed them into poor deals, even when better deals were available. 

The FCA estimated that this practice cost consumers around £165 million per year. No compensation was given to consumers as part of this investigation and the banning of these commissions.

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