How to check if I'm eligible for mis-sold car loan compensation ahead of Supreme Court ruling

Yahoo

a day ago

A new survey suggests that more than 23 million people believe they could be entitled to compensation for mis-sold car finance plans.
The poll, carried out by law firm Slater and Gordon, found that 45% of people think they might be due a payout over a car loan taken out between 2007 and 2021, the Guardian reports.
It comes as lenders and the government await a key Supreme Court ruling expected later this month which could clear the way for tens of billions worth of compensation payments.
Central to the dispute is the practice of showrooms setting higher interest rates in order to receive higher commission from lenders – without disclosing this arrangement to buyers.
While the scandal had been going on for more than a year, it gained momentum in October 2024, after the Court of Appeal said it was against the law for dealers to receive these commissions without telling the customer about it and getting their informed consent.
This opened up the scope of an investigation by the Financial Conduct Authority (FCA), which is now working on launching a redress scheme for buyers.
Here, Yahoo News explains how to check if you were mis-sold car finance and what to do about it.
Discretionary commission arrangements (DCA) was a system that rewarded car dealerships and brokers with higher rates of commission if they set higher interest rates on car loans.
Sarah Coles, head of personal finance and financial services company Hargreaves Lansdown, says this "incentivised them to act against the best interests of the customer".
She adds that "borrowers were unaware of these arrangements".
The FCA banned discretionary commission for motor finance in January 2021.
After a wave of complaints and the Financial Ombudsman siding with two borrowers, the FCA said in January of last year that it would review historical motor finance commission arrangements and sales.
In March, Money Saving Expert founder Martin Lewis said DCA covered "about 40% of car finance deals". He said another key element of this scandal is commission disclosure complaints.
This relates to the Court of Appeal's ruling that car dealers should have told their customers about their commission arrangements, including the amount they would receive. Lewis said this applied to up to 99% of car finance cases.
"If you think you have been caught up in this, you should start by complaining to the lender or broker who sold you the loan," says Coles.
"Say why you want to complain, and include as much information as you can.
"They should acknowledge your letter within eight weeks, but they don't have to send you a final answer until after 4 December this year – because things have been put on hold while the legal cases rumble on.
"If you're not happy with their reply, complain to the Financial Ombudsman Service.
"You don't need to use a claims service for this, which will take a really significant portion of any compensation. The process is designed to be straightforward enough for you to tackle it without one."
Money Saving Expert also has an "are you likely to be affected" checklist on its website, explaining circumstances under which you can and can't claim for a payout.
Agreements taken out after January 2021 will have been after DCA's were banned, but people could still be eligible for a commission disclosure claim.
People who bought their cars via hire purchase schemes are still entitled to file a claim, and you can also reclaim on behalf of someone who has died.
While an official scheme has not been put in place yet, Martin Lewis recently said that the typical payout for a DCA claim is £1,140.
"The FCA's own stats suggest that, on average, car buyers paid £1,100 more interest on a typical £10,000 four-year car finance deal when there was a discretionary commission arrangement," he wrote in April.
"So, obviously, the bigger the financing, the more you were charged, the more you may be due back."
The Supreme Court is expected to deliver a ruling on DCAs this month, but no date has been set.
This, depending on the outcome, the FCA has said it is "likely to consult on an industry-wide consumer redress scheme".
"Under a redress scheme, we would set rules for how firms assess claims and calculate redress, and we would put checks in place to ensure they are following the rules," the regulator said.
"Given that around nine in ten car buyers use finance, and most of these will include some form of commission, this is a massive issue," says Coles.
"Lloyds Banking Group, for example, has set aside £1.2 billion to cover the potential costs."
Credit rating agency Moody's has previously suggested the total financial fallout could reach £30bn.
Other analysts have gone even higher, suggesting a total bill of £44bn, according to the Guardian.
Of the 4,000 people surveyed by Slater and Gordon, 45% said they believed they were likely to be owed money back for mis-sold car finance.
This equates to more than 23 million adults across the UK. The survey found that 40% would consider a legal challenge if dissatisfied with the outcome of their claim.
Exclusive: Lloyds and Barclays bleed millions in complaint fees (CityAM)
What are my options with car finance? An expert breaks them down (The Independent)
'I was sold a faulty car that's been sat on my driveway for 3 months - I still pay £200 monthly for it (NottinghamshireLive)