Last month the Financial Conduct Authority (FCA) announced it was launching an investigation into historical motor finance commission arrangements. We explain the issue, outline what this means for you and assess if this will lead to the Payment Protection Insurance (PPI) type claims we saw in the last decade.
Click on the links below to navigate to that section:
- Summary of the issue
- Size of the motor finance problem
- What action has already been taken?
- Should I make a complaint?
- How do I make a motor finance complaint?
- What about using a CMC to complain?
- How quickly will a response be made to my complaint?
- Resources for making a motor finance complaint
- Will car finance commission be the next PPI?
- Related blogs
Summary of the issue
Up until January 2021 finance providers and dealers operated discretionary commission arrangements (DCAs). These are commission products that led to unfair practices because they gave motor dealers discretion to change the interest rate and charges on a car finance deal. DCAs were not good news for car buyers because they provided an incentive for dealers to increase interest charges so they could earn more commission. This means that many car buyers paid more on their monthly finance payments than should have been the case.
Size of the motor finance problem
Up to 40% of finance agreements arranged before 2021 were subject to DCA. The FCA has calculated that on average the car buyers affected have paid £1,100 more than they should have done.
What action has already been taken?
The FCA undertook an initial review of the motor finance industry and announced it had found unfair commission arrangements in a 2019 report. This led to the regulator publishing new rules that banned DCAs in 2021.
Since 2019 finance providers and dealers have received an increasing number of complaints made by car buyers relating to unfair commission arrangements. These have been facilitated by claims management companies (CMCs) who take a cut of any pay outs. Lenders and dealers have been defending these claims, leading to an escalation of complaints to the Financial Ombudsman Service (FOS). By the end of 2023 the number of complaints made that reached the FOS were in their thousands. The FCA has decided to take further action and opened a deep dive investigation into finance company commission arrangements.
Should I make a complaint?
If the following applies then it could be worthwhile making a complaint.
You took out a car finance agreement after April 2007 and before 28 January 2021
Car finance refers to a secured motor finance agreement to fund a motorised vehicle (car, van, motorcycle – but not caravan). Typically this is a Hire Purchase, Conditional Sale or Personal Contract Purchase agreement. A lease (Personal Contract Hire) and personal loans were not subject to DCA and therefore not relevant here.
The motor finance agreement is regulated
The finance agreement must be regulated. It should say this on the agreement itself. It can be a regulated business agreement but the car has to be used primarily for personal use.
You paid interest under the agreement
DCA won’t have applied to 0% interest agreements that are fairly common with new car finance loans.
The finance provider operated DCAs
There are a range of lenders that have never used DCAs. So complaining with any of the following would not be worthwhile:
- Admiral
- Advantage Finance
- Autolend
- Auto Money
- Billing Finance
- Burnley Savings & Loans
- Car Loan Centre
- Carmoola
- First Response Finance
- Guardian Finance
- Lendable
- Lombard
- Mallard Finance
- MoneyBarn
- Oodle Car Finance
- Oplo
- Premium Plan
- RateSetter
- Retail Money Market
- Specialist Motor Finance
- Tandem
- Vehicle Credit
- 1st Stop Finance
How do I make a motor finance complaint?
These are the steps you should take:
- Find information about the car(s) and finance agreement(s) – try and find the following relating to any car finance you’ve taken out:
- Finance agreement and its reference number
- Name of the finance provider
- Vehicle registration of car financed
- Address (at the time you entered the agreement)
- Dealer or broker you bought the vehicle through
- Find a complaints email address to contact the lender on – this should have been provided on the agreement paperwork or if you know the lender that provided finance have a look at the ‘contact us’ section on their website. This should provide their complaints email address.
- Write to the lender – this initial communication should be both an enquiry and a complaint in one. You should state that based on recent news that you think you may have been subject to unfair practices relating to historical motor finance commission arrangements. Build in as much information as you have from 1. above and:
- Note you are making a Data Subject Access Request (DSAR) to see if the lender holds any finance agreements under the details you’ve provided that were subject to discretionary commission arrangements. At a minimum you will need to provide your full name, address (at the time the agreement was taken out) and the vehicle registration number(s). Highlight that the lender should respond within 28 days as specified under the Data Protection Act 2018.
- Then state that if agreements with discretionary commission have been found that you are formally making a complaint.
What about using a CMC to complain?
You can use a claims management company (CMC) to make a complaint on your behalf. They aim to make the claims process hassle free and will oversee the entire process for you. However, CMCs are able to keep up to 30% of the total redress paid out as a fee. Also if you are considering using a CMC then make sure they are registered with the FCA.
How quickly will a response be made to my complaint?
Due to the high volume of complaints finance companies are receiving the FCA has implemented temporary complaint handling rules. This means that lenders don’t have to respond to your complaint until after 24 September 2024 at the earliest. They should still log that they have received your complaint however.
Resources for making a motor finance complaint
There is a range of background information and online resources available to helping you better understand this issue and make a car finance complaint. We link to some below:
- Complaints about car finance commission – FOS
- Car finance complaints – FCA
- MoneyHelper – for free support
- Moneysavingexpert free reclaim tool and guide
Will car finance commission be the next PPI?
In the 2000s and 2010s PPI claims were rife. This type of insurance policy was lumped into loans and mortgages without many people knowing they were even paying a PPI premium. By 2019 over £36 billion of redress had been paid out to consumers. The average payout was just over £3,000, but as much as £100,000 or more were received by some claimants. PPI products were very similar across the board. This meant it was fairly straightforward for the FCA and FOS to set up what is known as a ‘mass redress scheme’, whereby complaints could be issued easily in a template like way. Redress is a term that means restoring the financial position you woudl have been in
Motor finance commission claims are different in nature. Every motor finance agreement varies, with variations in the size of the loan, commission type, finance product, term etc. The average pay out is expected to be much lower than PPI at £1,100. According to the FCA the expected total redress will be in the hundreds of millions and not the billions seen with PPI.
But despite the differences, there have been thousands of commission complaints already lodged with lenders and the FOS. These have to be handled in an efficient way both for those finance customers that have been affected and complaint handlers at lenders and the FOS. A redress scheme would help achieve this.
It seems to be more likely a redress scheme is now on the cards, but we will not find out until September 2024 at the earliest, once the FCA has completed its investgation.
Related blogs
