Drivers could be owed “thousands” of pounds in compensation as the financial regulator looks into whether car finance companies unfairly profited from people looking to buy cars.
The Financial Conduct Authority (FCA) has announced that it will begin to undertake work in the motor finance market.
There have been a number of complaints being made from customers to motor finance firms who are claiming compensation for commission arrangements prior to law changes in 2021.
Three years ago, the FCA banned car dealers from benefitting from commission models which would have incentivised dealers from raising costs for customers.
The FCA announced that it will review historical motor finance commission arrangements
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It was found that these practices led to higher costs for drivers looking to finance vehicles, with firms failing to give customers timely information.
The FCA has now announced that it will review historical motor finance commission arrangements and sales across several firms.
The regulator said if widespread misconduct took place and if consumers had lost out, the FCA would identify “how best to make sure people who are owned compensation receive an appropriate settlement in an orderly, consistent and efficient way”.
It acknowledged how there has been a “significant dispute” between some firms and consumers on whether companies have breached legal and regulatory requirements.
Complaints received by firms on or after November 17, 2023, and on or before September 25, 2024, will be paused while the FCA investigates if “widespread misconduct” had taken place and whether drivers had “lost out”.
Reacting to the news, money saving expert Martin Lewis said “millions” of people could be owed compensation and what could happen in the future.
He added: “HUGE announcement from the FCA this morning that has gone totally under the radar. It may mean a pay-out for millions who bought a car/van on motor finance before 2021.
“I’ve done back of the envelope numbers and at the top end, this could be a PPI type scale (that was £40billion), big enough to be a form of quantitative easing (so real consequences for the next govt as it’ll likely take a year).
“The FCA wouldn’t do this unless it was likely to find they were doing it wrong. So my suspicion is when it finishes its investigation it will (in order of likelihood) set up either:
“a) A redress scheme where it orders all the firms to pay redress to every affected customer even if they've not complained.
“b) Redress rules where it orders them to pay out redress based on a set formula, to those that complain.”
The money saving expert suggested that any payout would be either the interest on loans, the commission or the whole loan, with the last measure representing the greatest amount.
Martin Lewis stated that the outcome of the investigation could lead to “thousands [of pounds] back for many”.
Aidan Rushby, CEO and founder of Carmoola, praised the move from the regulator saying: “The FCA's focus on transparency, fairness, and responsible lending practices is absolutely essential for building trust and protecting consumers in the car finance industry.
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Martin Lewis has suggested that 'many' drivers could be owed money
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"For too long, the sector has been plagued by hidden fees, complex terms, and opaque pricing structures, leaving many car buyers feeling confused and, frankly, being taken advantage of.
“Car finance should be accessible, understandable, and affordable for everyone.”