Car owners set for ‘Ppi-scale’ compensation
City watchdog investigating ‘widespread misconduct’ by those who sold finance at higher interest rates
THOUSANDS of drivers who bought cars on finance before 2021 could be in line for “Ppi-scale” compensation following landmark rulings.
The City watchdog is investigating potentially “widespread misconduct” by car dealers and credit brokers who allegedly sold finance at higher interest rates in return for enhanced commission.
The Financial Conduct Authority (FCA) banned such “discretionary commission” incentives in 2021 after finding that individual buyers were paying up to £1,100 over the odds on a £10,000, four-year finance package.
More than 10,000 complaints have been made to the Financial Ombudsman Service (FOS) by drivers who believe they were overcharged. The ombudsman has now ruled in favour of consumers in two cases against Barclays Partner Finance and Black Horse, which is owned by Lloyds Banking Group, and believes this could “signal the way forward” for many more similar complaints that have yet to be resolved between drivers and dealers.
One Black Horse customer was charged 5.5 per cent instead of 2.49 per cent when she bought a car in 2016, according to the FOS. In a similar case, a Barclays Partner Finance’s customer was charged 4.67 per cent instead of 2.68 per cent when she purchased a car in 2018.
The company was ordered to refund the difference and add 8 per cent a year in interest to cover the period since the customers made the payments.
The consumer champion Martin Lewis said the FCA’S announcement was “huge” and could lead to “Ppi-type scale” payouts for millions of drivers.
He said: “Two big Ombudsman cases revealed today indicate that firms are falsely rejecting complaints and the 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.”
He predicted the regulator would eventually set up a redress scheme to pay all affected customers.
The compensation bill for mis-sold payment protection insurance is thought to stand at around £40bn. Sheldon Mills, executive director of consumers and competition at the FCA, said: “We are taking a closer look at historical discretionary commission arrangements in the motor finance market following a high number of complaints from customers, which are being rejected by firms. If we find widespread misconduct, we will act to make sure people are compensated in an orderly, consistent and efficient way.”
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. 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.”
She said she welcomed the FCA’S decision to investigate, adding: “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.”
More than 90 per cent of cars are purchased via finance today. The FCA believes the landmark decisions could lead to a significant increase in complaints as more drivers seek compensation. The regulator had asked firms to review their practices and address any problems found, but said most consumer complaints have been rejected by firms who believe they acted fairly.
It said there is a “significant dispute” between some firms and consumers on whether companies have broken legal and regulatory rules, with some courts ruling in favour of car owners.