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Mis Sold Car Finance Claims: Who Is Likely To Be Affected?
Worried you’ve been mis-sold car finance? Here’s everything you need to know about the FCA’s investigation into discretionary commission arrangements: what happened, who was affected, and how you can make a claim.
Words by: Andrew Woodhouse
Last updated on 13 February 2024 | 0 min read
You may have seen news articles or ads online saying you may have been charged too much on your car finance and that you could be entitled to a claim. But is any of that actually true?
In this article, we’ll tell you what’s going on and what’s coming up, so you know what these claims and complaints are about, whether you’re eligible to make a complaint, and who to complain to. The investigation into car finance commission rates is ongoing, so we’ll keep this article updated with the latest information – that way you know what’s going on at all times.
In this article, we’ll tell you what’s going on and what’s coming up, so you know what these claims and complaints are about, whether you’re eligible to make a complaint, and who to complain to. The investigation into car finance commission rates is ongoing, so we’ll keep this article updated with the latest information – that way you know what’s going on at all times.
Background: discretionary commission arrangements could have resulted in unfair interest rates for consumers
It’s estimated that over 90 per cent of new cars are bought on finance in the UK.
Generally, somebody would arrange that finance loan for you – for example, a car retailer. This person is called the broker. The body loaning the money, for example a bank, is called the lender. The Financial Conduct Authority (FCA) estimates that up to 95 per cent of those car finance deals have some form of commission model for the broker - so that they could earn money from making the sale. Commission models are common, still in use, and not inherently wrong. But, before January 2021, some lenders allowed brokers to adjust the interest rates they offered customers for car finance. Under this system, the broker would get more commission for charging you a higher interest rate. This was called a discretionary commission arrangement. At its worst, this meant brokers could adjust your interest rates so that they earned more commission when rates were higher. Discretionary commission arrangements were banned in 2021, but many drivers who took out car finance before then may have been affected, and a “high number” have complained that they were overcharged before the ban.
Generally, somebody would arrange that finance loan for you – for example, a car retailer. This person is called the broker. The body loaning the money, for example a bank, is called the lender. The Financial Conduct Authority (FCA) estimates that up to 95 per cent of those car finance deals have some form of commission model for the broker - so that they could earn money from making the sale. Commission models are common, still in use, and not inherently wrong. But, before January 2021, some lenders allowed brokers to adjust the interest rates they offered customers for car finance. Under this system, the broker would get more commission for charging you a higher interest rate. This was called a discretionary commission arrangement. At its worst, this meant brokers could adjust your interest rates so that they earned more commission when rates were higher. Discretionary commission arrangements were banned in 2021, but many drivers who took out car finance before then may have been affected, and a “high number” have complained that they were overcharged before the ban.
The FCA are investigating a number of car finance arrangements
The FCA are investigating a number of car finance arrangements after receiving complaints that drivers may have been charged too much.
Previously, the Financial Ombudsman Service (FOS) said that it has received complaints from more than 10,000 people, who think they were charged too much for their car finance under the discretionary commission arrangement. Lenders and brokers have responded, saying they don’t believe they acted unfairly. But, given the number of complaints and potential scale of the issue, the FCA have stepped in the examine the issue and review “historical motor finance commission arrangements and sales across several firms”.
Previously, the Financial Ombudsman Service (FOS) said that it has received complaints from more than 10,000 people, who think they were charged too much for their car finance under the discretionary commission arrangement. Lenders and brokers have responded, saying they don’t believe they acted unfairly. But, given the number of complaints and potential scale of the issue, the FCA have stepped in the examine the issue and review “historical motor finance commission arrangements and sales across several firms”.
Who are the FCA and what are they going to do?
The Financial Conduct Authority (FCA) is a financial regulatory body and conduct regulator for financial services firms and markets in the UK. They are investigating the issue using powers under the Financial Services and Markets Act 2000.
The FCA will tell lenders and brokers how to handle these complaints. While they investigate, lenders don’t need to reply to new complaints. The investigation could last until the end of September 2024, so you should still lodge a complaint if you think it applies – we’ll cover the process below. If the FCA does find evidence of “widespread misconduct” and that consumers have lost out financially, they will work out how to compensate people “in an orderly, consistent and efficient way”.
The FCA will tell lenders and brokers how to handle these complaints. While they investigate, lenders don’t need to reply to new complaints. The investigation could last until the end of September 2024, so you should still lodge a complaint if you think it applies – we’ll cover the process below. If the FCA does find evidence of “widespread misconduct” and that consumers have lost out financially, they will work out how to compensate people “in an orderly, consistent and efficient way”.
How to find out if you are affected by the issue
The FCA says you may be affected if you used car finance (for example, hire purchase or PCP) to fund a vehicle purchase before 28 January 2021 and there was a discretionary commission arrangement between your lender and broker.
If you don’t know whether your broker and lender had a discretionary commission arrangement, or how much commission was taken, you can contact them to ask. Remember, they don’t have to reply to complaints while the FCA’s investigation is underway, but they should be able to answer queries. If you think the above applies to you and you may have been overcharged, it’s worth complaining to the lender or broker that sold you a vehicle on car finance as soon as possible. This doesn’t guarantee an outcome. If you applied for car finance on or after 28 January 2021, or you used a hire agreement like a car lease, then you won’t be affected by discretionary commission arrangements.
If you don’t know whether your broker and lender had a discretionary commission arrangement, or how much commission was taken, you can contact them to ask. Remember, they don’t have to reply to complaints while the FCA’s investigation is underway, but they should be able to answer queries. If you think the above applies to you and you may have been overcharged, it’s worth complaining to the lender or broker that sold you a vehicle on car finance as soon as possible. This doesn’t guarantee an outcome. If you applied for car finance on or after 28 January 2021, or you used a hire agreement like a car lease, then you won’t be affected by discretionary commission arrangements.
How you can raise a complaint and get a response
If you feel you were unfairly charged under the discretionary commission arrangement, you’ll need to contact the firm that sold your car finance.
There is normally an eight-week deadline for providers to get back to you, but the FCA has extended this as part of their investigation, so providers won’t have to respond to a complaint about this sort of car finance arrangement until after 25 September 2024 - at the earliest. That doesn’t mean you shouldn’t investigate and complain though – they will have to get back to you at some point. If a response to your complaint is likely to be delayed by the FCA’s investigation, the provider must tell you. If you’re not satisfied with their final response, you can escalate your complaint to the Financial Ombudsman Service (FOS). There is usually a six-month deadline for filing complaints to the FOS, but this has been extended to up to 15 months for responses received between July 12, 2023, and November 20, 2024. So even though you’ll have to wait longer for a response from your provider, you’ll have longer to file your complaint to the FOS. Make sure you keep a record of any complaints you make, as this could be helpful for keeping track of what has been said and what you do next.
There is normally an eight-week deadline for providers to get back to you, but the FCA has extended this as part of their investigation, so providers won’t have to respond to a complaint about this sort of car finance arrangement until after 25 September 2024 - at the earliest. That doesn’t mean you shouldn’t investigate and complain though – they will have to get back to you at some point. If a response to your complaint is likely to be delayed by the FCA’s investigation, the provider must tell you. If you’re not satisfied with their final response, you can escalate your complaint to the Financial Ombudsman Service (FOS). There is usually a six-month deadline for filing complaints to the FOS, but this has been extended to up to 15 months for responses received between July 12, 2023, and November 20, 2024. So even though you’ll have to wait longer for a response from your provider, you’ll have longer to file your complaint to the FOS. Make sure you keep a record of any complaints you make, as this could be helpful for keeping track of what has been said and what you do next.
How much compensation will I get if I was mis-sold car finance?
The FCA’s investigation is still in the early stages, so it’s currently unclear who will be eligible for compensation, how much affected consumers could receive in compensation, or whether the FCA will order firms to pay compensation at all.
Am I ok to buy a car on finance now?
This issue will not affect any car finance deals you’re currently looking at.
You may find brokers (retailers) do charge you commission, but remember, this is a common and legal way for brokers to make a living and, while discretionary commission arrangements have been banned, the FCA’s ban doesn’t cover all types of commission. Under the new rules, the retailer (acting as a broker) must confirm you’re paying commission. They can’t tell you how much they earn, but you are entitled to ask how commission affects the final amount you pay. Whenever you look at a finance plan, you should make sure you can afford the monthly repayments and that you read and understand the terms and conditions. Take your time to research the types of finance available, how much you’d have to pay and when by, plus what would happen if you fell behind with payments. Ask the retailer any questions you have, and don’t rush into a decision.
You may find brokers (retailers) do charge you commission, but remember, this is a common and legal way for brokers to make a living and, while discretionary commission arrangements have been banned, the FCA’s ban doesn’t cover all types of commission. Under the new rules, the retailer (acting as a broker) must confirm you’re paying commission. They can’t tell you how much they earn, but you are entitled to ask how commission affects the final amount you pay. Whenever you look at a finance plan, you should make sure you can afford the monthly repayments and that you read and understand the terms and conditions. Take your time to research the types of finance available, how much you’d have to pay and when by, plus what would happen if you fell behind with payments. Ask the retailer any questions you have, and don’t rush into a decision.