About £1bn in car loan compensation at risk because data deleted, lawyers warn
Consumers are at risk of losing £1bn of compensation over inflated car loans because high street banks and specialist lenders deleted their data, claims lawyers have warned.
Borrowers, banks and the government are anxiously awaiting a ruling from the supreme court that could spark one of the biggest redress schemes since the £50bn payment protection insurance (PPI) saga.
But some consumers could miss out because most banks typically purge customer data after six years. The Financial Conduct Authority (FCA) ordered firms to stop deleting car finance documents when it launched its initial investigation in January 2024. But the files relating to customers with contracts that ended more than six years earlier may have already been lost.
That could be a problem if the FCA sets up a compensation scheme where banks are ordered to contact borrowers who may be due a payout.
Claims law firm Courmacs Legal says that 465,000 consumer complaints on its books fall into this category, having been paid off before 2018. If all those claimants faced document deletion hurdles, they could lose out on £1.18bn worth of compensation – an average of £2,365 each – according to Courmacs' estimates.
'There is a real risk that millions of people will lose out because the banks which ripped them off will never write to them,' Darren Smith, managing director of Courmacs, said.
The Financing and Leasing Association, which represents leading car loan providers including Lloyds, Santander UK and Close Brothers, said: 'We have made clear to the FCA that consistent and fair outcomes cannot be delivered with patchy or absent data.'
The car loans scandal has been rumbling on for more than a year, but ballooned in October when a court of appeal judgment vastly expanded an FCA investigation into potentially harmful commission arrangements. It determined that paying a secret commission to car dealers, who had arranged the loans without disclosing the sum and terms of that commission to borrowers, was unlawful.
It sparked panic over compensation costs, with lenders including Santander UK, Close Brothers, Barclays and Lloyds potentially on the hook for up to £44bn, according to some analysts. Even chancellor Rachel Reeves attempted to intervene, warning supreme court judges ahead of the April hearing to avoid handing 'windfall' compensation to borrowers.
It is unclear whether the court of appeal ruling will be upheld. But consumer champion Martin Lewis said he was still concerned over how data deletion issues would be handled if there is compensation for discretionary commission arrangements (DCAs), which were the subject of the FCA's original investigation.
DCAs, which were banned in 2021, allowed car dealerships to earn more commission by setting higher interest rates, providing an incentive to make loans more expensive for consumers.
'I do have concerns about it. I am worried about how it will play out,' Lewis said. However, he urged consumers not to panic. 'We have to hope that the regulator will be on top of firms who have destroyed data, [and] we are only potentially two months away from having some clarity of what's going on.'
While banks were urged during the PPI scandal to err on the side of consumers, even when there was no documentation, it is not yet clear how this will play out for car loans.
An FCA spokesperson said: 'If we decide to undertake a redress scheme, we will work with industry and other interested parties to ensure that it is as clear and straightforward as possible for customers to complain.'
Lloyds Banking Group, the biggest provider of car loans, said: 'We do not recognise these figures shared by Courmacs, and encourage people to contact their car finance provider directly to avoid paying claims management fees.'
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
2 hours ago
- Yahoo
Graduate roles plummet as Reeves's job tax bites
Graduate job openings have plummeted by more than 20pc as Rachel Reeves's tax raid prompts businesses to cut back hiring for entry level positions. New figures from recruitment platform Adzuna show graduate job listings have plunged 22.8 pc in the year to April. Companies have slashed recruitment in an attempt to make savings following the Chancellor's autumn Budget, which increased employment costs from last month. The rate of employers' National Insurance increased, while the threshold at which it is paid was lowered. Graduates are bearing the brunt of Ms Reeves's tax raid. On a monthly basis, vacancies for graduate roles fell by 7.6pc in April, following a 17.3pc drop in March. The sharp decline in entry-level jobs comes amid growing questions over the value of university degrees, particularly as graduate schemes now offer salaries only in line with the minimum wage. The National Living Wage climbed 6.7pc to £12.21 per hour in April, meaning a full-time worker on the UK's lowest salary now earns the equivalent of £25,500 annually. Growth in the minimum wage has outpaced average pay across the economy and one in four jobs advertised to graduates on jobs platform Indeed now pays minimum wage or only scarcely higher. The figures reveal that university leavers are faced with one of the most challenging labour markets in years. Even the professional services and accounting sector, which has long been one of the biggest graduate employers in the country, has recorded a decline in recruitment. Earlier this year PwC froze hiring for one of its apprenticeship schemes and abandoned its practice of offering permanent positions to staff who graduated from it. In a bid to reduce headcounts KPMG, Deloitte, EY and PwC have all cut back on hiring graduates, school leavers and apprentices. Adzuna's figures show that vacancies across the economy declined by 0.95pc in April to 862,876. Andrew Hunter, co-founder of Adzuna, said: 'After signs of recovery in March, April brought a reminder that this remains a delicate job market. Vacancies dipped and salary growth, while still strong on an annual basis, is starting to show signs of slowing.' Figures released by the Office for National Statistics earlier this month revealed that the number of jobs advertised across the country fell to 761,000 in the three months to April, down from 804,000 for the previous three-month period. It marks the worst jobs market since January 2017, excluding the pandemic. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Yahoo
3 hours ago
- Yahoo
Lloyds faces questions on ‘no harm' claims amid mounting provisions
As the UK Supreme Court prepares to rule on whether car finance providers broke the law by failing to disclose commission arrangements to borrowers, a central question is coming into focus: how do lenders, such as Lloyds, justify claims of 'no harm' to customers while setting aside billions of pounds for potential redress? Lloyds Banking Group, the UK's largest motor finance lender, is at the centre of this debate. CEO Charlie Nunn told MPs on 20 May that Lloyds had seen 'no evidence of harm' in its car finance activities and argued that its motor finance arm, Black Horse, typically offered some of the lowest interest rates in the market. On that basis, he said, customers were unlikely to have found better deals elsewhere, even if dealer commissions were not disclosed. But the bank has also made two significant financial provisions. A £450 million charge was booked in late 2024 concerning the Financial Conduct Authority's (FCA) review of discretionary commission arrangements (DCAs). A second, £700 million provision followed earlier this year, after the Court of Appeal ruled that the non-disclosure of commissions could give rise to a claim in other consumer credit spaces beyond motor finance. This appears difficult to square with a claim of no customer detriment. Nunn, however, told the Treasury Select Committee that these charges should not be interpreted as admissions of harm but viewed as a result of unavoidable accounting principles. "That £450 million provision incorporates two things. One is the operational expenses of responding to claimant law firms. We have had a very large number of complaints that aren't even from our customers, so we know there are significant operational expenses in processing and trying to help customers. I don't know if they even had a policy with us, but there is a very high percentage of those. It is processing the operational complaints, supporting the customers and, if there is remediation linked to harm, paying out that remediation. "We haven't disclosed the split between those two things, but we obviously have experience. The operational expenses are very significant. We knew, based on actions that the FCA has announced, that we were going to incur significant costs. From an accounting perspective, we are legally obliged to do that. That is not linked to decisions that the FCA and Supreme Court will take on whether there was a breach of a law, whether there was harm, and if there was harm, whether appropriate remediation should be made. All those steps are independent of the accounting provision. I know that probably isn't helpful for the public, but that is the basis on which we make those decisions," he told the Committee. Even so, these provisions may also reflect the scale and complexity of proving no harm, rather than simply responding to complaints. Julian Rose, Director at Asset Finance Policy Limited, has pointed out that under the current FCA regime, the burden of proof lies with lenders. If the Supreme Court confirms that firms were required to disclose commissions, it will fall to the lenders to demonstrate that customers were not financially disadvantaged. 'In my view,' Rose writes, 'it will not be for consumers (or their representatives) to show evidence of harm. It will be for the car finance companies to show evidence of no harm. That means for each agreement, they will need evidenced that the rate provided was competitive with an industry benchmark rate.' That challenge will be especially difficult if firms no longer hold the necessary data. But will it prove more expensive for claimants or lenders? Most lenders follow standard data retention policies that delete customer records after six years. According to a recent Guardian report, claims firm Courmacs Legal says it holds around 465,000 customer complaints involving loans settled before 2018, many of which may now be missing documentation. If these consumers cannot be contacted or their agreements reviewed, they could lose out on up to £1.18 billion in compensation, Courmacs estimates. In January 2024, the FCA instructed firms not to delete car finance records while its investigation continued. But that came too late for many historical agreements. In a statement to the Guardian, the FCA said: 'If we decide to undertake a redress scheme, we will work with industry and other interested parties to ensure that it is as clear and straightforward as possible for customers to complain.' The Financing and Leasing Association (FLA), which represents major lenders including Lloyds, Santander UK and Close Brothers, has acknowledged the limitations of missing data. 'We have made clear to the FCA that consistent and fair outcomes cannot be delivered with patchy or absent data,' the FLA said. While the FCA has not yet confirmed whether a formal redress scheme will be introduced, a ruling in favour of borrowers by the Supreme Court would put pressure on the regulator to act. And if a scheme is mandated, firms will need robust documentation systems to avoid defaulting to redress. This may explain why Lloyds has already put aside more than £1.1 billion, regardless of its position that customers were not harmed. If the bank intends to prove that its loans were competitively priced, the ability to evidence that across thousands of legacy agreements will be critical — and expensive. As Rose argues, operational readiness will be key. 'There needs to be a standard table showing benchmark rates for similar loans and for similar customers,' he notes. 'Where the customer paid near the benchmark or below it, then it should be reasonable to assume there was no harm.' In the absence of such evidence, however, lenders will struggle to prove their case. Lloyds may not have admitted liability, but its financial provisions suggest it is preparing for a process where outcomes may hinge not on clear evidence of harm, but on the inability to demonstrate that harm did not occur. "Lloyds faces questions on 'no harm' claims amid mounting provisions" was originally created and published by Motor Finance Online, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
Yahoo
10 hours ago
- Yahoo
Scrapping two-child benefit cap ‘not off the table', says Education Secretary
Scrapping the two-child benefit cap is 'not off the table', a Cabinet minister has said. Education Secretary Bridget Phillipson said it is the 'moral mission' of the Labour Government to tackle child poverty as she described Reform UK as a party 'not on the side of working people'. Sir Keir Starmer and Chancellor Rachel Reeves are under pressure to respond to mounting calls for the two-child benefit cap to be axed at a cost of around £3.5 billion. The policy means parents only receive support for up to two children through the universal credit system. The Government's child poverty strategy, which was due to be published in the spring, is now set to come out in the autumn so it can be aligned with the Chancellor's budget. Asked if she would 'scrap' the cap, Ms Phillipson told BBC Breakfast: 'We're certainly looking at it as part of the task force. As I say, nothing's off the table but this is not straightforward, the costs are high. 'When we came into Government we had to make some difficult decisions about how we got the economy back on a stable footing, because actually it's working people who lose out when you have that kind of instability that we saw under Liz Truss, when mortgage rates went up, rent went up as a result of all of the instability and the chaos. 'But I came into politics to tackle child poverty, to make sure that wherever you're from doesn't determine what you can go on to achieve in life, to break that link between background and success. 'That is the moral mission of this Labour Government. That is what we are all as a Government determined to deliver.' She added: 'We'll set it all out later on this year, in the autumn. I think it's important that we get it right. 'So what we've heard from experts, from organisations, from those who are supporting families and children in poverty, is that they want a comprehensive strategy that addresses every aspect of how we can make sure that fewer children are growing up in poverty.' On Tuesday Reform UK leader Nigel Farage is to make his 'pitch to working people' by committing to scrapping the two-child benefit cap and reinstating the winter fuel payment. Ms Phillipson said Mr Farage's party is 'not serious'. She told Sky News: 'Reform previously supported introducing, or the predecessor party, supported introducing the two-child cap. 'I don't think it's serious to suggest that millionaires should receive the winter fuel allowance, but we are committed to ensuring that more pensioners can benefit from the winter fuel allowance, as the Prime Minister said last week. 'Reform are the people that don't believe in the NHS, working people would be lost without the NHS. They don't believe in it in its current form. They don't believe in it into the future. They would seek to dismantle it as it exists now, free at the point of need. 'That's who Reform are. It's just not serious. They're not on the side of working people.' Meanwhile, Conservative shadow chancellor Mel Stride said his party would not get 'carried away with this idea that Nigel Farage is a party of the right'. He told Times Radio: '(The Reform) manifesto had £140 billion of giveaways in it, both tax and spending. 'They say they would have taken everybody earning up to £20,000 out of income tax altogether, at a cost of £60 billion. Not a shred of evidence that they have any way that they know how to actually fund that. 'And (Mr Farage) is now today standing up, he's going to say something about winter fuel payment and the two-child benefit cap, meaning that people can continue to have more children, and that will be funded and covered by the state – that is a left-wing position, and it also comes with a price tag of £5 billion between those two measures. 'He has not got a clue as to how any of that is going to be funded and we've seen that playbook before, and it doesn't lead to a good place.'
