Tens of thousands of car finance customers could get huge payouts after overcharging probe – are you due compensation?
TENS of thousands of people could be owed compensation on car loans following a high number of complaints.
The City watchdog, the Financial Conduct Authority (FCA), is looking into whether customers were overcharged for historical car finance loans.
It comes as about 10,000 people have complained about being overcharged to the Financial Ombudsman Service (FOS), which resolves disputes between financial companies and customers.
Today’s announcement also follows two upheld complaints relating to commissions on car loans at the FOS.
In one case a borrower who took out a finance loan in November 2018 was charged a rate of 4.67%, rather than the 2.68% the bank would have loaned her, because the dealer received a higher commission payment of £1,593.
In the other, the dealer charged the borrower a rate of 5.5% on their finance deal rather than 2.49%, in return for a commission payment of £1,299.
Both complainants said the commission was hidden and they were unaware they paid a higher rate of interest.
While the FOS insists its decisions do not set a precedent, the rulings show it has found evidence these commission structures are unfair and may uphold similar cases in future.
If the FCA now finds evidence of widespread misconduct and that claims have been unfairly rejected, it said it will make sure those affected receive compensation.
The exact amount customers could be owed is currently unknown but the FCA will be looking at this as part of its investigation.
The FOS usually requires you to complain within six years of your problem happening, and within six months of you receiving a final response from the company you complained to.
However, for complaints about car finance overcharging, the FCA has extended this window to 15 months if you were sent a final response between July 12, 2023, and November 20, 2024.
It has also put a temporary pause on firms having to respond to complaints within a set timeframe until September to prevent “disorderly, inconsistent and inefficient outcomes for consumers”.
They normally have to respond within eight weeks.
The pause, which started today, applies to complaints about motor finance agreements where there was a discretionary commission arrangement and will last until September 25, 2024.
In December, data from the ombudsman showed the volume of complaints about car financing reached a five-year high.
Consumer expert Martyn James told The Sun he expects this to be “the tip of a very big iceberg” for car financing complaints.
He said: “Car financing is one of the biggest forms of credit in the UK.
“Thousands upon thousands of people may have been overcharged and could therefore be owed compensation.”
Car finance loans are a way of getting a car without having to pay the lump sum upfront.
You effectively borrow the money and then pay the loan back in instalments over a set period.
The most common type of loan is a Personal Contract Purchase (PCP) loan, which is more like renting the car long-term.
You pay a monthly instalment and can hand the car back if you decide you don’t want it any more.
This is a great way for drivers to get a top car without the price tag or the commitment.
However, until 2021, the firms involved in arranging these deals could take a commission if they managed to get the customer to agree to pay a higher interest rate.
This meant brokers and car dealers were incentivised to raise customers’ financing costs, meaning drivers often ended up paying more than they should have.
The FCA banned this practice in 2021, but it today said there have been many complaints from before the ban.
The latest intervention by the watchdog follows legal action lodged against three of the UK’s biggest car finance providers for overcharging customers.
The litigation claimed anyone who bought a car on finance between October 15 and January 27, 2021, may have been charged too much interest on their loan.
How to make a complaint if you’re affected
According to Mr James, anyone who took out a PCP car loan in the few years leading up to 2021 should make a complaint to their car financing company.
In your complaint, you should ask whether you were overcharged due to your broker getting paid commission and ask the company to put it right if so.
If you’re not happy with the company’s response, you can take your complaint to the FOS for free.
You don’t need to use a claims company to take your complaint to the FOS.
These firms usually take a percentage cut of your payout if they help you.
Do you have a money problem that needs sorting? Get in touch by emailing money@the-sun.co.uk.
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