Huge car finance compensation update as key deadline for claims extended and you could be owed £1,000s
THE financial watchdog has extended the time lenders have to respond to motor finance complaints.
The Financial Conduct Authority (FCA) said it follows a London Court of Appeal ruling in October.
At the time, the court ruled that it was unlawful for car dealers to receive commission on motor finance from lenders without a customer’s informed consent.
Banks and other lenders now have until December 4 2025 to provide a final response to customer complaints.
The FCA said: “Firms who provide motor finance are likely to receive a high volume of complaints in response to the judgment.
“We have extended the time firms have to handle complaints to help prevent disorderly, inconsistent and inefficient outcomes for consumers and firms.”
The FCA is in the process of finding out how many motorists have been affected and what compensation customers will receive.
Those who bought a car, motorbike or van on finance before January 28, 2021, could be owed potentially thousands of pounds.
Just yesterday, Barclays lost a legal challenge against the Financial Ombudsman Service (FOS) that it unfairly paid commission to a car finance broker.
Earlier this year, the FOS said Barclays Bank unfairly paid commission to a credit broker in connection with a customer’s car loan.
The banking giant said it would appeal the decision.
Close Brothers was granted permission earlier this month by the UK’s highest court to appeal against the landmark ruling on motor finance commission.
The Supreme Court said the banking group could challenge the earlier judgment in the Court of Appeal.
It marked the latest development in the looming crisis facing the motor finance industry, with major lenders on the hook for potentially billions of pounds’ worth of compensation.
The October court decision opened the door for a potentially fresh wave of complaints from consumers who think they may have been mis-sold car finance in previous years.
On the Supreme Court appeal, the FCA said it planned to apply to “formally intervene in the case to share our expertise to assist the Court”.
“We previously wrote to the Court asking it to decide quickly whether it will give permission to appeal and, if it does, to determine the substantive appeal as soon as possible,” the FCA added.
The regulator said the complaint handling extension also covers motor leasing, despite it not being covered in the Court of Appeal’s judgment, as well as motor finance credit arrangements.
Financial gurus such as Martin Lewis have previously said the scale of this probe is much like the PIP Scandal, which saw millions of people receive compensation.
The Payment Protection Insurance (PPI) scandal saw 16.5million people handed payouts totalling £38.3billion after banks and other financial institutions mis-sold PPI policies to millions of customers between 1990 and 2010.
SEPARATE INVESTIGATION
The FCA has been carrying out a separate investigation into so-called discretionary commission arrangements.
This saw dealers fix higher interest rates on credit agreements, meaning consumers were charged more without knowing.
The practice was banned in 2021.
The FCA is aiming to set out the next steps in its review in May next year, when it also hopes to provide an update on non-discretionary commission agreements complaints.
The FCA said: “What we can say in May will depend on the progress of the appeal to the Supreme Court and the timing and nature of any decision.
“If we can end the complaint handling extension sooner than December 2025, we will.”
The FCA added: “Motor finance is an important market, serving over two million consumers a year.
“In deciding next steps, we’ll consider how to make sure affected consumers are appropriately compensated and the market continues to work well, with effective competition.”
HOW TO CLAIM
Consumer finance website MoneySavingExpert.com offers an email template to help you complain to your finance provider.
You can download this by visiting moneysavingexpert.com/reclaim/reclaim-car-finance.
Alternatively, you can complain directly without using the template.
It’s crucial for anyone who took out car finance to file a claim, even if a previous claim was denied.
In your complaint, ask whether you were overcharged due to your broker receiving a commission and request the company to rectify this if it occurred.
If you’re unsatisfied with the company’s response, you can escalate your complaint to the Financial Ombudsman Service (FOS) at no cost.
You have until July 29, 2026, or up to 15 months from the date of the company’s final response letter, whichever is longer.
Avoid using a claims management firm, as they will take a portion of any successful claim.
What is the FCA investigating and who is eligible for compensation?
By Jacob Jaffa, Motors Reporter
What is being investigated?
The FCA announced in January that it would investigate allegations of “widespread misconduct” related to discretionary commission agreements (DCAs) on car loans.
When you buy a car on finance, you are effectively loaned the value of the car while you pay it off.
These loans have interest payments charged on top of them and are often organised on behalf of lenders by brokers – usually the finance arm of a dealership.
These brokers earn money in the form of commission – a percentage of the interest payments on the loan.
DCAs allowed brokers to, to a certain extent, increase the interest rate on a loan, which in turn increased the amount of commission they received.
The practice was banned by the FCA in 2021.
Who is eligible for compensation?
The FCA estimates that around 40% of car deals may have been affected before 2021.
There are two criteria you must meet to have a chance at receiving compensation.
First, you must be complaining in relation to a finance deal on a motor vehicle (including cars, vans, motorbikes and motorhomes) that was agreed before January 28 2021.
Second, you must have bought the vehicle through a mechanism like Personal Contract Purchase (PCP) or Hire Purchase (HP), which make up the majority of finance deals and mean you own the vehicle at the end of the agreement.
Drivers who leased a car through something like a Personal Contract Hire, where you give the car back at the end of the lease, are not eligible.