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Martin's Car Finance News briefing...
CONFIRMED: £9bn mass redress scheme
Bought a car, van or motorbike on finance since 2007? 12m deals were mis-sold & are due a typical £830 back. Free complaint tool to get it quicker, easier & with more certainty

Finally, the regulator, the FCA, last night set out its new mass redress scheme for car finance, covering 12m mis-sold agreements from 2007 to 2024. It'll all kick off at the start of July (unless there's legal challenge, of course).

And 'mass' is the crucial word, as it won't just cover those who make complaints - firms must try and rout out everyone who was mis-sold and contact them. Yet it's important to understand...

It's best to put in a complaint if you haven't yet, as you'll get your money far quicker and there's less chance of missing out as they don't have your (correct) info.

- When does it start? The clock starts ticking on 1 Jul for agreements made after 31 Mar 2014, and 1 Sep for those before. Most who've complained you should be contacted within 3mths of that.
- Find it easier to watch or listen? I've done an instant reaction video explainer and a mini podcast episode on it. 
- Got specific questions... I'm going to explain in detail, but here's quick jump links if you've a specific issue...

- How do I complain? And what if I don't know my finance info?
- I've already complained, what next? (incl if they said 'you've no case').
- Is it better to go to court?
- When will I get my money, and could all this be challenged?

What did this week's announcement change? The most important thing is it confirmed the mass redress scheme would go ahead. The big picture is it's pretty similar to what we knew from the consultation, yet some things are different... 

- It was 14m mis-sold agreements, now it's 12m. This is due to increased exclusions, especially on the 'contractual ties' issue.

- The payout did average £700, now it's £830, as there'll be higher compensatory interest & higher payout rates for earlier claims.

- The total cost was £11bn, now it's £9bn (with the amount of redress to consumers moving from £8.2bn to £7.5bn) - some due to fewer agreements, but also as it now predicts a 75%, not 85%, take-up rate.

As it's complex, I'll highlight the changes in orange as I explain below...

There are THREE ways you may have been mis-sold under this scheme. And each agreement could've been mis-sold in more than one way. With all three, the key is that what they did wasn't disclosed to you (it was in very few % of cases), so...

As you weren't told what they were doing, the only way to know now if you've got a complaint, is to complain!

1. Discretionary Commission Arrangements (DCAs). 10.6m (was 11.4m) agreements. This was the original form of mis-selling that most people who put in complaints asked about. Here, without telling you, the interest rate you paid was increased, in order to pay the dealer or broker extra commission. DCAs were banned on 28 Jan 2021, so this only applies to finance agreements prior to that.
   
   
2. Contractual ties. 1.1m (was 2.4m) agreements. This is where a broker didn't adequately disclose it was working exclusively with one lender, or that one lender had a right of first refusal, eg, the dealer said: "We'll go to a panel of lenders to find you the best car finance", but in reality one lender had first refusal, so the 'searching the market' was false.
   
   Change: If dealer was linked to lender (eg, VW dealer, VW finance). The FCA has now said if firms prove to them there was an obvious 'captive and white-label tied agreement' between the dealer and finance firm (eg, VW dealer, VW finance; Toyota dealer, Toyota finance; Ford dealer, Ford Finance) - and there is evidence of prominent and consistent branding in the consumer journey - it won't count as contractual tie mis-selling as the link was obvious.
   
   This is why there are so many fewer cases here. If this impacts you, you could still have been mis-sold in one of the other two ways.
   
   
3. Unfairly high commission. 2.6m (was 2.9m) agreements. If the commission paid to brokers or dealers was BOTH over 39% (change: it was 35%) of the total cost of credit AND 10% of the total loan cost, then without disclosure this is seen as likely excessive and thus mis-selling. (There's also a higher category of unfair commission where the compensation will be bigger).

With all types you can use our free complaint tool to ask if that happened with your agreement.

• Change: There are some new exclusions... The FCA says it will exclude claims where the total commission was below £120 (pre April 2014) or £150 (after 1 April 2014), as at this level it doesn't think it would've affected decisions. 
  
  It will also exclude cases where there was a DCA in place but it wasn't used to give discretionary commission.
  
  Plus it's excluding 0.5% of claims which were for high-value loans, saying they're not suitable for a mass market redress scheme (so you'd need to reclaim individually and can escalate your case to the Financial Ombudsman if you're not happy with its decision).

Already complained using the free MSE tool (or any DIY route)? Over 3.7m complaints have been sent via our free complaint tool. What to do now depends on how (& if) the firm replied - there are three main camps.

• It replied and said you DID have a Discretionary Commission Arrangement: Compensation is very likely. So sit tight and wait until after the implementation period (see the 'I've complained timetable' below) and you should be sent a letter or email (or in some cases a phone call) telling you how much you're owed. Then if you accept it, you'll be paid within a month.
  
  
• If it didn't say anything except 'acknowledge receipt'. Well, the key is you put in a complaint and it got it. You're on the fast track and don't need to do anything more. See the 'I've complained timetable' below.
  
  
• If it replied "you don't have a complaint"...! Till the middle of last year, the FCA was only investigating DCAs, and that's what our complaint letters focused on.
  
  If it wrote back and said you didn't have a DCA, that isn't the end of it, as a Supreme Court ruling last year meant two new mis-selling categories (contractual ties & unfairly high commission) were added and they cover around 4m agreements. 
  
  Change: Now best practice is to put another complaint in. I believe this is a change, but the FCA was unclear before, so it may not be. While your case will be looked at again by the firm for the other two types of mis-selling, you won't be in the quicker "I've complained" route - you'll be in the slower "I've not complained (opt in)" route (see the complaint timetables below).
  
  That's not ideal, so you can use our complaint tool again now to speed it up, as it now includes all three complaint types.

Not complained yet & had car finance? Do it now - there are free tools to help. If a firm's data shows you were mis-sold and you haven't complained, the mass redress scheme means it will have to let you know. 

Yet that way you likely won't be paid out until 2027 or even 2028, rather than 2026, and you are reliant on the firm having kept your info, and it being able to track you down (if you've changed name or address). So far better to get a complaint in yourself, and it's not just me saying that, the FCA boss said it on my show last week...

• FREE TOOL 1: If you know who you had finance with... the MSE Car Finance Complaint Tool. Our free complaint tool has had 3.7m complaints and incorporates all three mis-selling types. You just put in your car finance details for each agreement and it builds an email based on my draft, and fills in the right address to send it to. PS: We don't data-mine or store your info.
  
  We get great feedback, like from Roy last week: "Thank you very much for creating the free tool to draft complaint letters to car finance companies in relation to the car finance redress scheme. Whilst I have only just submitted my letters and will wait to see what happens, I am so grateful for the tool which made it super easy to generate the emails with the correct details and wording."
  
  
• FREE TOOL 2: Forgotten if you had car finance or lost the paperwork? Credit reference agency Equifax has just launched a free Car finance checker app tool with info on all the car finance records reported to it since 2007 (most but not all firms' policies - feedback's been good though), including info on any joint agreements. 
  
  Though to get it you'll need to sign up to its free basic Equifax account (if you're being asked to pay, you've done it wrong). It won't say if you were mis-sold, but the info it gives is great to then plug into our free complaint tool.

The timeline: when will I get my money (and could this all be challenged)? I think a legal challenge is quite likely, but the FCA has done something that may be clever. The most likely challenge would be a Judicial Review of the regulator to get it to exclude agreements made before 1 April 2014.

So the FCA has technically split the car finance redress scheme into two: one from 6 April 2007 to 31 March 2014, the other from 1 April 2014 to 1 November 2024. That way, if there is a challenge to the earlier agreements, they will be put on hold, but it can carry on as normal with the later ones. Yet the currently planned schedule is... 

Step 1: Implementation Period. Basically, this means there's a wait until it all starts. If your agreement was made from 1 April 2014, the implementation period ends 30 June; if it was made before, it will be 31 August.

Step 2 (for those who complained before implementation period ends): If you've already complained, or do it soon, within three months of the implementation period ending you'll be told if you're due compensation and how much. If you accept that straight away, you'll be paid what you're owed within 1 month of accepting. So that should be October at the latest (December for older agreements).

Step 2 (for those who've not complained): If the firm thinks you were mis-sold, it must contact you within 6 months and ask if you want to opt in to a complaint. You'll then be told if you're owed compensation and how much within 3 months, and if you accept, you'll be paid within a month after that. So that will likely be around or after April 2027 (June 2027 for older agreements).

How much will be paid out & will there be interest? This is where we've seen the most changes. On the surface it's good news, as the average payout is now to be £830, rather than £700 as it was. 

Some of this is a real increase due to more compensatory interest and higher payouts on older agreements. Yet an element is because quite a lot of those who were due smaller payouts have been excluded, which ups the average.

The calculation is the same for most ways you were mis-sold, even if you were mis-sold in more than one way (with the exception of a small number of extremely high commission cases). 

Change: A cap has been added for some. 1 in 3 agreements will see the payout capped so that people aren't put in a better position than they would be had they just got a fair deal. Generally, this applies to those where less commission was taken. In general (it's complex), the cap is set at the lowest of:

- 90% of the commission, plus interest.
- The cost of the borrowing (ie interest generally), worked out against a very cheap benchmark deal (ie the cheapest 5% on the market, ignoring interest-free deals).

There will be compensatory interest added on top. This is to make up for the fact you couldn't use the amount mis-sold over time. The initial rate was very poor - we campaigned strongly that this wasn't enough, was far lower than prior mis-selling campaigns and wouldn't come close to the realistic loss. While it's still not where we'd like it, I'm pleased the FCA has increased it.

The interest is set for each year from roughly when you got the agreement. It is simple interest (ie, not compounded):

- Was: Bank base rate in the year +1%.
- Change: Now Bank base rate in the year +1% (min 3%).

That means that every year from 2009 to 2022 you'll get significantly more than you would've before, often double (as it would've been 1.5% in most years).

We don't yet know if this interest would be taxable as savings interest. My guess is it will, based on how it worked with PPI and bank charge reclaims, but do remember most basic rate taxpayers can earn £1,000 (higher rate taxpayers £500) of interest a year without being taxed on it due to the Personal Savings Allowance. 

There is another way you can do this - go to court, and you may get more... Above I've focused on the regulator's mass scheme. Yet it's important to understand the payouts are not as high as the court may award based on some past cases. 

My guess is the FCA watered them down primarily to find a compromise to try and ensure that lenders don't derail the process. Only time will tell if that's enough. Yet of course equally, if it's watered it down too much, that will just push more people to go to court, make it more difficult and clog up the courts. 

And indeed for this reason, when those who've complained get sent the letter asking if you want to get your payout, it's important you know you've a right to say no, as you may choose the court route instead. Yet while you may get more via court, it's likely 30% or more would go to pay claims firms/lawyers' fees, which will eat away at a chunk of that. 

I've made the call that MSE and I will focus on the redress scheme, and all our info above is about that. I've done that because most people contact me saying: "Can't they just make it easy and quick?" and the redress scheme is likely to be easier. 

Plus, I want to support the 'mass' element of the scheme that means millions, including vulnerable people who won't complain, will get redress. Yet that doesn't mean court is wrong - the decision is yours, and done right you may end up better off via it. There are plenty of firms you can use to access it. 

Ultimately, neither route is perfect. So while court is a more militant option for some, as a mass-user website we're focusing our resources on helping through the mass-redress scheme.

I've signed up to a claims firm - what do I do? The FCA redress scheme is designed to make DIY easy, so if you're going through this route, not court, firms won't add much. 

Yet if you've already signed up, the main issue is some contracts say they can charge you a cancellation fee, and it's payable on cancellation, ie, now (others say a success fee is due if you win, even if you cancel - do check). If you stick with them, the regulators say you should only be charged for work done.

Both the FCA and the Solicitors Regulation Authority (SRA) - as firms can be regulated by one or the other, you need to check yours - say charges must be reasonable, but frustratingly they don't define that. So if you think they're not, make a formal complaint, then if it's rejected, you can go to the Claims Management Ombudsman (if FCA regulated), or the Legal Ombudsman (if SRA regulated). 

We will aim to look into this further in the coming weeks, but are somewhat reliant on whether there is more guidance from the regulators.

Got more questions that haven't been answered? Check out our detailed Car finance mis-selling guide which has even more info.