Money Saving Expert Martin Lewis has urged drivers to check if they’re one of the “millions” across the UK eligible for a pay-out.
The financial expert warned that the complaints could lead to a “new PPI”, a multi-billion pound scandal after banks were found to have mis-sold a type of insurance to customers.
Financial Conduct Authority’s (FCA) has launched an investigation on the alleged mis-selling of new and secondhand cars and will examine whether consumers had been unfairly charged inflated prices for loans by British auto.
In 2021, the FCA banned discretionary commission arrangements, where dealers were able to receive commission and set the interest rate that customers paid.
Since then, a “high number” of complaints have been received from people who took out car finance prior to the ban who believe they were being charged too much.
The ombudsman service said it had heard from more than 10,000 people who fear they were charged too much for their finance and “many more are waiting in the wings”.
Martin Lewis said this could lead to a ‘PPI-type scale’ in payouts (Andrew Matthews/PA)— (PA Archive)
Mr Lewis took to social media to share the “huge” announcement and urged drivers to lodge a complaint now, so it’s in the queue for when action may be taken.
“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,” he said. “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).
He added: ““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.”
There is significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements, it said.
The FCA is using powers under the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.
“If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way,” the regulator said.
It has paused an eight-week deadline for motor finance firms to provide a final response to relevant customer complaints.
The pause, which started on Thursday, applies to complaints about motor finance agreements where there was a discretionary commission arrangement between the lender and the broker and will last for 37 weeks – or around nine months.
It will apply to complaints received by firms on or after November 17 2023 and on or before September 25 2024.
Consumers may also have up to 15 months to refer their complaint to the FOS, rather than the usual six months, depending on when the firm’s final response was sent out.
Companies are rejecting most complaints because they consider they have not acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements, the FCA said.
As well as complaints to the FOS, claims have also been brought in the county courts, some of which have been upheld.
Abby Thomas, chief executive and chief ombudsman at the FOS, said: “When people take out a car loan it’s imperative they are treated fairly and the financial implications are totally transparent.
A ‘high number’ of complaints have been received by the FCA— (Getty Images)
“Unfortunately, that is not always the case. We’ve heard from more than 10,000 people who fear they were charged too much for their finance, and we know many more are waiting in the wings.
“We’ve resolved two complaints where we found that the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer. Our decisions could signal the way forward for many more similar complaints that have not been resolved between firms and consumers.
“That’s why I welcome the Financial Conduct Authority’s decision to assess this issue further. In the meantime, we’re totally committed to continuing to investigate cases with our service.
“If people are concerned about their car loans and are unhappy with how firms have responded, they can come directly to our free, independent service and we will investigate their complaint.”
Stephen Haddrill, director general of the Finance & Leasing Association said: “We welcome today’s announcement as the pause will ultimately provide certainty for firms and customers after a period where speculative and unfounded complaints issued by claims management companies have congested what should be a smooth, prompt and clear process.
“We will work with the FCA over the coming months to resolve this issue.”
