Reclaiming mis-sold car finance: Important information for 2024.

If you believe you have been a victim of mis-sold car finance, it is crucial to gather all relevant documentation and seek professional advice to explore your options for reclaiming any losses incurred.

When it comes to buying a car, many people turn to car finance options. However, not all car finance deals are created equal. Some may be mis-sold, meaning that the terms and conditions were not clearly explained or the deal was unsuitable for the buyer’s circumstances.

Major companies, such as Barclays Partner Finance, Blackhorse and Santander, have been found guilty of mis-selling car finance in the past. If you believe that you have been a victim of mis-sold car finance, it’s important to take action to reclaim what is rightfully yours.

In this guide, we will discuss what you need to know about mis-sold car finance and what options you may have if you have been affected.

What is car finance?

Car finance is a way to purchase a car without having to pay the total amount upfront. It allows buyers to spread out the cost over monthly payments, similar to how a mortgage works for buying a house. There are different types of car finance options available, including:

Personal contract purchase (PCP)

This is the most popular type of car finance in the UK. With PCP, you pay a deposit and monthly instalments for a fixed period of time, usually 2 to 4 years. At the end of the term, you have three options:

  • Return the car to the dealer
  • Pay the remaining amount owed and keep the car
  • Use any equity in the car towards a new PCP deal

See our dedicated page to find out more about PCP Claims.

Hire purchase (HP)

Similar to PCP, with HP, you pay a deposit and monthly instalments over a fixed period of time. However, unlike PCP, you do not have the option to return the car at the end of the term. Instead, once all payments have been made, you own the car outright.

You can read more about Hire Purchase Car Finance claims here.

Personal contract hire (PCH)

With PCH, you essentially lease the car for a fixed period of time, usually 2 to 4 years. You make monthly payments and return the car at the end of the term, with no option to buy it.

Now that you know the basics of car finance, let’s discuss what mis-sold car finance is and how it can happen.

What is mis-sold car finance?

Mis-sold car finance occurs when a dealer or lender does not fully explain the terms and conditions of the deal, or if they provide you with a deal that is not suitable for your circumstances. This could include:

  • Not disclosing all fees and charges associated with the deal
  • Not explaining the terms and conditions in a clear and understandable manner
  • Providing you with a deal that does not match your financial situation or needs

The primary driver of mis-sold car finance in the UK was what is known as ‘discretionary commission arrangements’ between dealers and lenders. In simple terms, these arrangements allowed dealers to increase the interest rate on car finance deals and gave them a financial incentive to do so. This resulted in buyers paying more interest and potentially being sold a deal that was not suitable for them.

A consumer holding a key from their newly purchased car, which may have been purchased with mis-sold car finance.

What is the FCA’s (Financial Conduct Authority) stance on mis-sold car finance?

The FCA banned  ‘discretionary commission arrangements’ in 2001. However, the Financial Ombudsman Service (FOS) has been contacted by around 10,000 customers who believe they have been affected by this practice prior to the ban.

The lenders and brokers involved in the mis-selling of car finance have largely rejected these claims, insisting that they have not done anything wrong. However, the FCA has recently announced that it will be launching an investigation into the matter.

Given the significant number of potential victims, the FCA has stated that it is looking into the issues and will be reviewing historical motor finance commission arrangements and sales processes to identify if there is any evidence of harm or mis-selling, using the power granted by the Financial Services and Markets Act 2000.

What does this mean?

Prior to the FCA stepping in,  the handling of complaints regarding car finance was largely left to the discretion of the lenders and brokers. These complaints were largely, and potentially falsely, rejected, resulting in a huge number of complaints to the FOS, which prompted the FCA’s investigation.

This case has similarities to the PPI (Payment Protection Insurance) scandal, where banks and lenders were found to have mis-sold PPI policies to millions of customers, resulting in billions of pounds being paid out in compensation.

Should the FCA find that mis-sold car finance is indeed a widespread issue, it could result in mass compensation payouts for affected customers in a similar manner.

How do I know if I have been mis-sold car finance?

The FCA has already laid out the guidelines for those who feel they may have been affected by mis-sold car finance. The cases being reviewed by the FCA include those where:

  1. You bought a car under a finance scheme before 28 January 2021.
  2. That agreement involved a discretionary commission arrangement between the dealer and the lender.
  3. The agreement was a form of personal contract purchase (PCP) or a hire purchase agreement.

If you took out your car finance after 28 January 2021, your case won’t be covered by the scope of the FCA’s investigation, as discretionary commission arrangements had been banned by this date.

Read More: See the common reasons people may have been mis-sold car finance.

What are my options if I have been mis-sold car finance?

If you believe that you have been affected by mis-sold car finance, there are steps you can take to reclaim what is rightfully yours. These could include:

Making a complaint to your dealer to lender

Your lender should be your first port of call if you feel that you have been mis-sold car finance. Provide them with the details of your agreement and explain why you believe it was not suitable for you. If they don’t respond or reject your complaint, you can escalate it to the Financial Ombudsman Service (FOS).

Escalate the complaint to the FOS

The FOS is an independent body that will investigate your complaint for free.  One of the types of complaints they look into is “that commission was not adequately disclosed or unhappy with the amount of commission paid from the lender to the broker who arranged their car finance.” If your lender or dealer has rejected your complaint, you can escalate it to the FOS for a fair and impartial investigation.

You typically have three to six months from the date of your last response to escalate your complaint. However, in this case, the FCA has extended this window to 15 months for “final responses received between 12 July 2023 and 20 November 2024.”

How long will the FOS take to investigate my complaint?

As the FCA is currently investigating this matter, it has paused firms responding to any claims “received on or after 17 November 2023 up to 25 September 2024” related to mis-sold car finance.

However, it’s important to make a complaint as soon as possible as a signpost to the FOS. This will help you secure your position should the FCA’s investigation result in compensation being paid out and prevent any issues with a potential cut-off being put in place.

What could my compensation include?

The potential compensation you could receive for the specific cases being investigated by the FCA is unclear, and any potential redress rules won’t come into effect until the investigation has been completed.

However, there are already established guidelines for determining compensation in cases of mis-sold car finance, which you can use as a basis for your claim. These include:

  • Refunding the difference between the interest you paid and what you should have paid at an appropriate simple interest rate.
  • Refunding any charges or fees, such as early settlement fees.
  • Compensation for any inconvenience caused.

In a recent case of mis-sold car finance where the FOS rules in favour of the customer, one individual received the difference between the rate they were charged (5.5%) and the rate they would have been charged (2.49%), without the broker’s commission, plus 8% interest on each overpayment.

It’s important to note, however, that until the FCA concludes its investigation and announces the redress rules, any potential compensation for mis-sold car finance remains uncertain. It’s essential to keep an eye on any updates from the FCA to ensure that you are aware of your rights as a consumer and can take appropriate action if necessary.

Conclusion

The issue of mis-sold car finance has been brought to light by the FCA’s ongoing investigation, and it has the potential to result in a significant number of compensation payouts for affected customers. If you believe that you have been mis-sold car finance, it’s essential to follow the necessary steps to reclaim what is rightfully yours.

Keep an eye on updates from the FCA, and don’t hesitate to make a complaint if you feel your agreement was mis-sold. By taking action, you can ensure that your rights as a consumer are protected and potentially receive compensation for any financial harm caused by mis-sold car finance.

Car Finance Mis-selling FAQ

To make this issue as clear as possible, we’ve compiled a list of commonly asked questions related to mis-sold car finance and the ongoing FCA investigation.

Mis-sold car finance refers to cases where dealers and lenders have not adequately disclosed the commission arrangements in place for arranging financing agreements. This can result in customers being charged higher interest rates than they should be or paying extra fees without their knowledge.

If you bought a car under a finance scheme before 28 January 2021, and the agreement involved a discretionary commission arrangement between the dealer and the lender, you may have been affected by mis-sold car finance. However, it’s essential to review your agreement and seek professional advice if you are unsure.

The first step is to make a complaint directly to your lender. If they reject or ignore your complaint, you can escalate it to the FOS for an impartial investigation. It’s crucial to do this as soon as possible, especially with the FCA’s extended deadline for escalations.

If your claim was rejected by your lender, you can still escalate it to the FOS for further investigation. However, if you have already received a final response from the FOS on your complaint, there is no option to resubmit it. However, you still have the option to take the matter to court if you believe your claim was wrongly rejected.

The potential compensation for mis-sold car finance remains uncertain until the FCA concludes its investigation and announces redress rules. However, there are established guidelines for determining compensation, and affected customers may be entitled to a refund of overpaid interest, fees or charges, and compensation for any inconvenience caused. Keep an eye on updates from the FCA for more information.

The length of time it takes for the FOS to investigate your complaint may vary, and it could take several months or longer. However, as the FCA is currently investigating this matter, there may be a delay in the FOS’s response to your complaint. As it stands, If you complained on or after 17 November 2023, you won’t see any response until 25 September 2024 at the earliest, as a temporary “complaint pause” is in place.

Yes, it is still worthwhile to make a complaint as soon as possible, even with the extended deadline for escalations. This will secure your position and ensure that you are included in any potential compensation payouts resulting from the FCA’s investigation.

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