Can I still get car finance compensation?

Times

a day ago

Drivers who bought their car on finance could still claim back up to £950 as part of a long-running investigating into hidden commission, despite a landmark court win for lenders last week.
On Friday the Supreme Court spared the car finance industry from a worst-case scenario, which could have resulted in paying out a total of £44 billion to 15 million drivers.
But the ruling was swiftly followed by intervention by the Financial Conduct Authority (FCA), the City watchdog, which yesterday announced it would consult on a redress scheme that could see lenders on the hook for a total compensation bill of between £9 billion and £18 billion.
The FCA is expected to confirm the details of its consultation in October and the first compensation payouts could start next year — so what does it mean for drivers, and will you be eligible for a payout?
The FCA began an investigation into historic car finance lending in January 2024, prompted by a rising number of complaints to the courts and to the Financial Ombudsman Service, a free dispute service, about hidden commissions in car finance deals.
In particular the FCA was looking at discretionary commission arrangements, where the fee paid to dealers was linked to the interest rate borrowers paid, which in some cases incentivised dealers to give customers a higher rate.
This model was used in about 35 per cent of car finance deals, according to the FCA, before it banned the practice in January 2021. The FCA said borrowers could have paid about £1,100 more in interest over a four-year £10,000 car finance deal under the commission model. The regulator was looking at whether consumers were fully told about how to commission worked and the impact it could have on their repayments.
Nikhil Rathi, the chief executive of the FCA, warned yesterday that it was 'clear that some firms have broken the law and our rules'.
The Court of Appeal had ruled in October that car dealers had a duty to make clear the nature and value of any commission paid to them to ensure that borrowers could give 'informed consent' before agreeing to a deal. The judgment involved three cases brought by drivers who argued that they had been treated unfairly because they had not been told about commission involved in their deals.
The ruling triggered a backlash from lenders and from the Treasury, which tried to intervene, arguing that a massive bill for the industry would damage the economy.
On Friday the decision was largely overturned by the Supreme Court, although it did uphold one of the three cases — in favour of Marcus Johnson, a factory worker from south Wales, because in his case the £1,651 commission he paid was 55 per cent of the cost of finance on his five-year loan.
The court said: 'The fact that the undisclosed commission was so high is a powerful indication that the relationship between Mr Johnson and the lender was unfair.'
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Most of the money paid out under a redress scheme will compensate those who were charged discretionary commission — but claims that do not involve discretionary commission could also be successful. The Supreme Court ruling has given hope to drivers with deals that contained a high level of commission, such as in the Johnson case, or where the commission model caused them to pay more.
Philip Salter, a former FCA regulator now at the consultancy Sicsic Advisory, said: 'The key development is not just the confirmation of a scheme for discretionary commission arrangements, but the explicit inclusion of non-discretionary models as well. This is a direct consequence of the Supreme Court's ruling and widens the net of lenders that will be impacted.'
The FCA suggested it would look at the size of commission in absolute terms, and also relative to the overall cost of the interest, in deciding whether an agreement was unfair. The size of the payout would likely be a refund of the commission, plus compensatory interest.
The FCA suggested that the majority of successful claimants would get less than £950 per finance deal.
The FCA said it would decide whether any scheme would be opt-in (where drivers would have to complain to their lender) or opt-out, which would require lenders to contact customers directly if they thought they were due compensation for loans taken out since 2007. These details are expected to be confirmed towards the end of this year.
Adrian Dally from the Finance & Leasing Association trade body said: 'We have concerns about whether it is possible to have a fair redress scheme that goes back to 2007 when firms have not been required to hold such historic information, and the evidence will be patchy at best.'
Since the FCA began its investigation last year it has been clear that any redress scheme would be free to use, like the financial services ombudsman, where customers can take a complaint if the company rejects it.
But consumers have been bombarded with adverts from claims management companies and no-win no-fee law firms offering to take on their cases, in return for up to 30 per cent of any payout.
If you have already signed a contract with a claims management company to represent your claim, it is worth checking it for any details of an exit fee. Under FCA rules you have the right to exit an agreement with a claims company, subject to a fee.
But some consumer law firms have exit fees of £150 or more. If you feel a claims firm is charging an unfair exit fee — these charges must reflect the work the firm has done — you can complain about them either to the FCA (which regulates claims management companies) or, if it is a law firm, the Solicitors Regulation Authority.