Millions of drivers who purchased cars via auto financing may be in line for a payout, according to the UK financial watchdog.The Financial Conduct Authority (FCA) revelation has been termed "the new PPI" by Martin Lewis, who describes it as a scandal in which consumers may have been unfairly charged inflated prices for car loans.
The Financial Conduct Authority said on Thursday (January 12) that it had decided to examine whether a compensation scheme was needed to deal with the alleged large-scale mis-selling.
The scheme is in response to worries that auto-finance companies were unfairly dismissing mis-selling accusations from borrowers.Before January 2021, some lenders allowed brokers to adjust the interest rates they offered customers for car finance.
Typically, the higher the interest rate, the more commission the broker received. This was known as a discretionary commission arrangement, and they created an incentive for brokers to increase how much people were charged for their car loan.
The FCA banned this practice in 2021, but there has been a deluge of complaints, which lenders and brokers are mostly rejecting, because they believe they haven’t acted unfairly nor caused customers to lose out.
The FCA is looking into how complaints regarding commissions were handled when individuals obtained auto financing. It is organising a thorough examination of the way complaints are handled. According to Lewis, they "wouldn't do this unless it was likely to find they were doing it wrong".
Lewis's preliminary projections indicate that "at the top end" this might result in PPI-scale settlements, which have reached £40 billion, or be significant enough to qualify as quantitative easing.
Quantitative easing is the process by which the Bank of England purchases bonds in order to raise their value and lower long-term interest rates. This raises expenditure and drives up the cost of goods and services.
He said: "My suspicion is when it [the FCA] finishes its investigation it will set up either A) a redress scheme where it orders all the firms to pay redress to every effected customer even if they’ve not complained; or 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)."
Lewis clarified that any complaints filed after this point will not be addressed because the FCA has placed a stop on companies that handle grievances about auto financing.
He does, however, advise anyone who believes they were misled about auto financing to file a complaint right away, "as a marker".
If you think you may have been mis-sold car finance, visit the official site for details and how to claim.
