There’s a new financial mis-selling scandal that’s been bubbling away for a number of years now. In the coming weeks and months, you’re going to be hearing a lot more about car finance, commission and compensation.

It’s estimated that billions of pounds in compensation could be paid out to people who have been overcharged when taking out finance to buy a vehicle. Yet the facts behind the story are ridiculously complicated – and a bit boring – so many people may not know about what’s going on, of if they are entitled to some cash back.

Here’s my 60-second guide.

What’s the problem with car and vehicle finance?

If you’ve bought a car or vehicle in the past decade, chances are you’ve taken out a Personal Contract Plan (PCP). This is by far the most common way to pay for a vehicle and in 2022, £51 billion in car finance loans were sold and 6.2 million consumer car finance contracts were in operation. [source] Car and vehicle finance is big business.

However, for the past few years I’ve been warning about the complexity of these finance agreements, the various ways you could be mis-sold or overcharged and the many things that can go wrong with the deals. Check out my most recent guide in Times Money Mentor from October 2023 here.

There’s now a new concern to add to the list: excessive commission.

What’s the problem with car finance commission?

Remember PPI? It was the biggest financial mis-selling scandal of all time. Millions of unsuitable policies were mis-sold to people resulting in billions in compensation. Just when it seemed that the whole sorry saga was about to end, it turned out that tons of people had been charged huge rates of commission on their policies too. These hidden commission rates made up the bulk of many people’s PPI payments.

After a High Court ruling, the regulator, the Financial Conduct Authority (FCA), set up rules for compensation covering anyone who had been mis-sold and hadn’t made a PPI claim or their mis-selling complaint had been turned down. Many more millions of pounds were subsequently paid out in compensation.

Flash forward to 2021 and after an investigation the FCA banned excessive commission on car finance deals. But by this point, claims managers (CMCs) – the vultures of the compensation industry – had already scented blood in the water. Largely driven by CMCs, the Financial Ombudsman Service (FOS) had received 10,000 claims about excessive commission and car finance. In January 2024, the Ombudsman confirmed it had upheld a few of these cases, potentially opening the door for a flood of cases.

At this point, the FCA stepped in and euphemistically announced that it was going to consider setting up a compensation scheme. The FCA also announced it was going to:

  • pause, for 37 weeks, the requirement on firms to provide a final response to a complaint about motor finance agreements with discretionary commission arrangements (DCAs) within 8 weeks of receiving the complaint  
  • extend the time consumers have to refer DCA complaints to the Financial Ombudsman from 6 to 15 months, if the firm sent its final response to the complaint within the period specified in the rules 

To cut a long story short, I’d say it’s likely that the FCA will announce some form of scheme for people overcharged commission on their car finance agreements later this year.

Can I get compensation for a mis-sold car finance deal or overcharged commission?

While we wait for the FCA’s decision there’s a lot of confusion about what we should all do. The official guidance is to not make a complaint, but claims managers are already reportedly ramping up their attempts to lure people in to signing up for claims. Here’s my quick guide to what you should – and shouldn’t – do.

Do see if commission claims potentially apply to you. If you took out car, van or even motorbike finance to buy a vehicle prior to the FCA ban – 28 Jan 2021 – then you might be able to make a complaint or claim.

Don’t worry about how far back you might be able to claim for now. There’s a lot of debate around when people can claim from among my fellow experts. The Statute of Limitations Act allows you to make claims that go back a certain number of years but as a general rule you have three years from the point you became aware of the problem with a finance product (i.e. as you read this) to make a claim. But things become complicated due to this type of credit not being formally regulated until 2007 (the Consumer Credit Act). For now, if you have details of your agreement, make an enquiry with the finance firm.

Don’t use a claims management company, even if it seems like making a complaint is too hard or complicated. As we saw from PPI, claims management companies will hit you with a fee for making a claim on your behalf. With PPI, those fees ranged from 25% to 40% or more of the total compensation. I also encountered a number of horror stories involving people being taken to court by tardy CMCs for compensation that was paid out when they failed to carry out the appropriate work.

Check to see if you’re affected. You can find a template letter and a tool to check if you’re affected on the free Consumer Voice website here. MoneySavingExpert also has a free car finance reclaim too here.

Do register an enquiry or complaint now so you don’t forget. Car finance firms have been given longer to look in to these claims but you can still register them. There are template letters you can use on the sites I’ve just mentioned so it’s incredibly easy to do this.

Do focus on the vehicle car finance provider, not the dealer, as this is where the commission issue originates. If you want to make a complaint about the mis-selling of a finance deal, insurance policies sold alongside it, debt collection procedures or overcharging, then you can still do this. These complaints are a separate issue.

One last thing…

This story is rapidly evolving and there are lots of things that still need to be clarified or might emerge later on in the year. For now, just ask yourself if you’ve been sold a car finance deal prior to 28 January 2021 and if so, follow my advice!

Featured in Times Money Mentor – Martyn James

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