The Financial Conduct Authority (FCA) is currently conducting an investigation into potential overcharging on car finance loans, with the possibility of millions of claims being filed by drivers. The inquiry is specifically targeting hidden and unjust commission arrangements on vehicle loans acquired between 2007 and 2021, and the results are scheduled to be released on September 25, 2024.
Simon Evans, the CEO of the Consumer Redress Association, has issued a cautionary statement, expressing concerns that many individuals may have been overcharged for their car finance during this period, potentially leading to a substantial volume of claims. He also acknowledged the efforts of consumer advocate Martin Lewis in raising awareness about this issue.
In the previous month, Martin Lewis disclosed that 1.1 million people had lodged complaints with their lender using a complimentary tool on the MoneySavingExpert.com website. However, Simon Evans warned that while a large number of individuals may have obtained the template complaint letter from the website, not all of them may have proceeded to send it to their lender.
In response to the increasing number of complaints, Martin Lewis has provided guidance on the subsequent course of action after sending the complaint letter, along with the necessary steps based on the lender’s response. This information is readily accessible on MSE.com.
The founder of MoneySavingExpert.com described the magnitude of complaints as “staggering” and suggested that car finance mis-selling could result in substantial compensation payouts, potentially rivalling the scale of the PPI scandal. The PPI scandal led to UK banks paying out billions of pounds in compensation to customers who were misled into purchasing personal protection insurance from the mid-1990s.
According to Simon Evans, the potential extent of those impacted by potential car finance mis-selling has the potential to be “on par” with PPI. He clarified that individuals who have purchased multiple cars in the last fifteen years are likely to have multiple claims, presenting a significant challenge for car finance companies.
Although Nikhil Rathi, the chief executive of the FCA, played down comparisons with the PPI scandal, the financial implications of the car finance investigation are already affecting companies. Lloyds Banking Group, the owner of Black Horse, the largest car finance lender in the UK, has set aside a provision of £450 million to cover potential expenses related to the FCA’s review.
In anticipation of the impending findings, financial institutions such as Close Brothers Group are gearing up for the impact of the investigation by fortifying their finances. The FCA is expected to outline its future steps from the review by the end of September.
The possibility of a surge in compensation claims stemming from the car finance review holds significant consequences for both consumers and financial institutions. This ongoing issue underscores the importance of transparency and fairness in consumer financial products, as well as the necessity for robust regulatory oversight.