MSE News

Millions who bought a car or van on motor finance could be due a payout as major mis-selling investigation launched – what we know

If you bought a car or van on motor finance from the likes of Barclays Partner Finance, Blackhorse and Santander, and you think you were overcharged, you could be due a payout as a major mis-selling investigation has been launched. MoneySavingExpert.com founder Martin Lewis is also warning anyone affected to lodge a new complaint now, so it's in the queue for when any action is taken.

Update: 7 February 2024: As promised, we've now launched our free Car finance reclaim guide and tool. You can use this to check if you're affected, read answers to the most frequently asked questions and log your complaint without having to pay a claims firm.

Martin Lewis: Car finance FREE reclaim tool and full guide

The new investigation comes amid concerns motor finance firms may be unfairly rejecting mis-selling claims from borrowers who believe their contract was more expensive because their dealer stood to earn a hefty commission by charging more.

While this practice has been banned since 2021, independent complaints arbitrator the Financial Ombudsman Service (FOS) says it's heard from more than 10,000 people who fear they were overcharged. The FOS has also recently ruled in favour of two consumers on the issue, prompting the Financial Conduct Authority's (FCA) probe.

Martin Lewis: 'This may mean a payout for millions'

Below is Martin's instant reaction to the FCA's announcement, which you can also read on X, formerly known as Twitter.

Martin Lewis, founder of MoneySavingExpert.com, said: "HUGE announcement from @theFCA this morning that has gone totally under the radar. It may mean a payout for millions who bought a car/van on motor finance before 2021.

"I've done back of the envelope numbers and at the top end this could be PPI-type scale (that was £40 billion), big enough to be a form of quantitative easing (so real consequences for the next Government as it'll likely take a year).

"It is to look at the handling of complaints about commissions when people got motor finance (pre-2021). Two big ombudsman cases revealed today indicate that firms are falsely rejecting complaints and the Financial Conduct Authority (FCA) is now to do a full review of complaint handling.

"The FCA wouldn't do this unless it was likely to find they were doing it wrong. So my suspicion is when it finishes its investigation it will (in order of likelihood) set up either:

"a) A redress scheme where it orders all the firms to pay redress to every affected customer even if they've not complained.

"b) Redress rules where it orders them to pay out redress based on a set formula, to those that complain.

"The payout would be either the interest on loans (which is big), the commission (which is big), or the whole loan (which is huge). We're possibly talking thousands back for many.

"Clearly this means getting complaints in, if you were mis-sold, is going to be crucial – especially if they choose scheme b) and there is a cut-off involved.

"It should be noted part of the announcement is the FCA has put a freeze on firms handling complaints for now, so if you complain now they don't have to do anything, but my provisional thoughts are it is worth people who think they've been mis-sold getting in a complaint now as a marker.

"So my team and I will be working on a full guide on how to do that which we'll have out in the next couple of weeks to talk you through this step-by-step. Please watch this space and share with people who may have been impacted."

Your motor finance payout questions answered

An important word from Martin

"This is our provisional news story just to give you a heads up of what's going on. The team and I are working on a major step-by-step guide on how to do this, answering all of your questions. We should be ready in a couple of weeks, so if you don't get the MSE weekly email, do sign up and we can notify you when it's ready."

Q: What complaints will the investigation look into?
A: The FCA's investigation will apply to complaints where:

  • You bought a car using car finance before 28 January 2021, which is when new rules banning this type of commission model took force. 
  • Your car finance was a personal contract purchase (PCP) – the most common type of car finance, which is a bit like a loan to help you get the car (for more info, read our guide on PCP) – or a hire purchase agreement, which is where you pay off the value of the car in monthly instalments.
  • Your lender and car dealer (acting as a credit broker) had what's known as a 'discretionary commission arrangement' in place – where the higher the interest rate you were charged, the more commission the broker would get.
Q: Which claims won't the investigation cover?
A:
The FCA investigation will NOT cover complaints where:
 
  • You bought your car using car finance on or after 28 January 2021, when such commission contracts were banned.
  • You have a car leasing agreement (also known as Personal Contract Hire).
  • Your mis-selling claim doesn't centre on commission. For example, it could instead relate to affordability concerns where the dealership or finance company didn't check you could afford the loan.

These complaints can still be submitted and will be dealt with as normal – see our Reclaim mis-sold car finance guide for more info and help (this will be updated with today's news in due course).

Q: How much could I get if a redress scheme goes ahead?
A: We don't know yet. The FCA has only said that it will "identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way".

Q: I think I'm affected but haven't complained yet. Should I get in a claim now or wait?
A: As Martin outlines above, you should file any complaints to the firm involved as soon as possible. This is because redress rules could set a cut-off for doing so.
 
Typically, you must complain to your provider within six years of the issue, or within three years of you becoming aware of the problem.
 
However, be mindful that the FCA has put a pause on firms responding to such complaints received on or after 17 November 2023 up to 25 September 2024, while it investigates the problem.
 
Q: The firm I want to submit a complaint to has gone bust. What should I do?
A: If the firm has entered into administration or is in the process of being liquidated, you can complain to the administrator or to the liquidator. You can find the administrator or liquidator's name and contact details by searching for the firm's name on the FCA's Financial Services Register.

Unfortunately, you can't make a complaint to your lender (or to the FOS or courts) if the lender has already been dissolved. However, you can still complain to the broker (often the car dealer) instead if it's still trading.
 
Q: I've already complained to the firm but it hasn't responded yet. What happens now? 
A:
 If you complained on or after 17 November 2023, your complaint won't be dealt with until after 25 September 2024, which is when the FCA hopes to have concluded its investigation by. You just need to wait.

If you complained prior to 17 November 2023, your provider can still respond as normal. Though if you're unhappy with the response you got, you may want to take your complaint to the FOS.
 
Usually, you have to take your complaint to the FOS within six months of getting a final response from your provider. However, the FCA has extended this deadline for these claims to 15 months if you are sent a final response between 12 July 2023 and 20 November 2024.

Q: I've already lodged a complaint with the ombudsman or with the courts. Will it still be dealt with? 
A:
 Yes. Complaints that have already been escalated to the FOS or to the courts can continue to be dealt with as normal.

Q: My claim has already been rejected. Can I resubmit it?
A:
This depends on how far down the complaints process you are:
 
  • If your complaint has already been dealt with by the firm involved, but it hasn't been escalated to the FOS or to the courts, then you may be able to ask it to reconsider based on the outcome of the FCA's investigation.
  • If your complaint has been dealt with by the FOS, then you won't be able to resubmit your complaint to the FOS based on the FCA's investigation outcome. However, you can still take your case to the courts.
  • If your complaint has already been dealt with by the courts, the outcome of the FCA's investigation won't change that.

Q: I've used a claims management company (CMC) to submit my complaint. What happens now?
A:
If you've used a CMC to make a complaint, you should contact the claims firm to find out what the FCA's investigation means for your case, as this will vary depending on the firm's T&Cs.

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