How to recover mis-sold car finance

City watchdog is investigating potentially ‘widespread misconduct’ by dealers and credit brokers, reports Noah Eastwood

If you signed a car finance agreement before 2021 there could be a chance the dealership made up an interest rate on the spot – with hardly a glance at your credit score.

The City watchdog is investigating potentially “widespread misconduct” by car dealers and credit brokers who are alleged to have sold finance at higher rates in return for extra pay from lenders.

So- called discretionary commissions were banned by the Financial Conduct Authority ( FCA) three years ago and thousands of drivers could now be owed money if the watchdog rules in their favour.

The FCA has brought in a new complaints process to assist its investigation, which is being handled by the Financial Ombudsman Service ( Fos), the national arbiter of financial disputes. This was a result of the ombudsman ruling in favour of consumers in two cases – against Barclays Partner Finance and Black Horse, which is owned by Lloyds Banking Group.

Black Horse’s commission fees led to one driver being charged an interest rate of 5.5pc, instead of 2.49pc, when she bought a car in 2016, according to the Fos. In a similar case, Barclays Partner Finance’s fees meant a driver was charged 4.67pc, instead of 2.68pc, when she purchased a car in 2018.

It applies to those who signed hire purchase agreements ( HP), including personal contract purchase ( PCP) deals, which were made with a discretionary commission arrangement between lenders and car dealers, who often act as credit brokers.

Martin Lewis, founder of Moneysavingexpert.com, says the total sum of payouts could be as big as the £40bn PPI mis- selling scandal. He advises anyone who thinks they have been mis-sold “getting in a complaint now as a marker”.

This is what you need to do if you believe you have been charged an unfairly high rate.

1. COMPLAIN TO THE DEALERSHIP

Before taking your complaint to the ombudsman, it is important you thoroughly pursue it with the car dealer or broker who sold you the finance first.

Going directly to the ombudsman will waste precious time and may not equip you with all the facts you need to build a strong case.

The FCA has said there is a longer window for complaints to be heard by the Fos, provided you received a final response to your complaint from the dealership between July 12 2023 and Nov 20 2024.

Normally, people have six months from the final response to go to the ombudsman, but those who receive it within this time will have 15 months.

If you receive a final response after Nov 20 of this year, the ordinary sixmonth limit will apply again. This is why it is so important to act quickly.

Tell the dealer that you would like to know whether a “discretionary commission” was secured on the agreement, which you need to have signed before Jan 28 2021, and provide the customer reference number they gave you at the time. If they confirm that it was, you should make them aware that you are unhappy and believe you have overpaid for the product.

Should the dealership fail to engage with your complaint within the relevant time frame, take the complaint to the Fos and inform them of this.

2. ASK FOR YOUR MONEY BACK

You should then ask them to refund you, but the dealership is unlikely to agree to this.

According to the FCA, there have been a high number of complaints from customers about how much they were charged and lenders and brokers are rejecting most of them. Ask the broker to tell you the lowest possible rate that you could have been given based on your credit file at the time of your application for finance, according to their agreement with the lender. Brokers should charge lower interest rates for the larger loans that are used in most PCP deals. They should also take into account your credit history. If you have a good record, you are judged to be less of a risk and charged a lower rate.

Based on this, you will be able to calculate the amount you overpaid and ask the dealership for that sum of money to be repaid to you.

The FCA found that individual buyers were paying up to £1,100 more than necessary on a £ 10,000, four- year finance package, for example.

3. KEEP RECORDS OF CALLS, EMAILS AND EVENTS

Every record of your interactions with the dealership, if they acted as broker for the lender, should be kept. The more evidence you can present to the ombudsman the better. This should include all correspondence and, most importantly, the final response you receive from the dealership telling you they have concluded their handling of your complaint.

This gives you the go ahead to bring a claim to the Fos, which can order the dealership to repay any money it finds you paid unfairly. But be patient – the whole process could take months.

Financial services firms usually have eight weeks to respond to your complaint. However, under the new rules, dealerships also have more time, up to 45 weeks, to send a final response if you complained within the July to November window.

It suggests that the FCA expects car dealers will receive a substantial number of complaints and need more time to respond.

4. GO TO THE OMBUDSMAN

If you are dissatisfied with the dealership’s response to your complaint, then it is time to go to the Fos.

The service has an online portal through which its complaints are initially handled.

You should hear back from them within 10 working days and have a decision within three months. It may take longer, however, in which case they will contact you about the delay.

They will investigate your query regarding discretionary commission using documents you submit, the two most important being the credit agreement itself and the initial disclosure document.

You should also explain clearly what each document is and provide dates for your correspondence with the dealership, including evidence they made a discretionary commission on your agreement.

It costs nothing to complain and you don’t need to go through a claims management company, which will take a big cut of any money you win back.

Contact us Did you overpay for car finance? We want to hear from you email money@ telegraph.co.uk