Consumer champion Martin Lewis has issued a stark warning to anyone considering taking out a car finance deal, urging them to pause for thought. The founder of MoneySavingExpert.com has advised drivers to potentially delay signing any new agreements following a major regulatory announcement.
Why You Should Think Twice About Car Finance
The urgent advice stems from a significant intervention by the Financial Conduct Authority (FCA). The UK's financial watchdog has launched a sweeping investigation into the car finance market, specifically targeting the widespread practice of discretionary commission arrangements. These arrangements, which were banned in January 2021, allowed brokers and car dealers to secretly increase the interest rate on a loan to earn themselves a higher commission.
Martin Lewis explained the core issue during his recent appearance on ITV's The Martin Lewis Money Show Live. "If you are thinking of getting car finance at the moment, I would seriously consider holding off for a few months if you can," he stated. The rationale is clear: the FCA's probe could lead to new rules that force lenders to handle complaints differently and potentially offer compensation to affected customers. Signing a deal now might mean missing out on future protections or redress.
The FCA Investigation and Potential Payouts
The scale of the issue is enormous. The FCA's investigation is looking at deals sold before the 2021 ban, and it has paused an existing deadline for consumers to lodge complaints until September 25, 2024, while it conducts its review. This pause offers a crucial window of opportunity for millions.
Lewis highlighted the potential for a compensation scheme akin to the PPI scandal, though likely on a smaller scale. "This is on a PPI scale, maybe not as big, but big numbers," he told viewers. The key question for consumers is whether they had a car finance deal before 28 January 2021. If they did, and they suspect a discretionary commission arrangement was in place, they may have a claim.
The process for checking is straightforward. Lewis advises consumers to first complain directly to the finance company that provided the loan. If the complaint is rejected or not resolved within eight weeks, it can be escalated to the Financial Ombudsman Service. Due to the FCA's pause, firms are not currently required to respond to these complaints, but Lewis strongly recommends getting your claim in now to secure your place in the queue.
What Drivers Should Do Now
For current and past car finance customers, Martin Lewis's guidance is clear and actionable.
If you are thinking of buying a car on finance now: Consider delaying if possible until after the FCA concludes its investigation in September. This could lead to a fairer market or new rules that work in your favour.
If you had car finance before January 2021: You should prepare to make a complaint. Gather your finance agreement details and contact the lender. You can use free online tools and template complaint letters provided by MoneySavingExpert.com to guide you through the process.
Don't use a claims management company: Lewis emphatically warns against paying a firm to handle your claim. "Do not use a claims management company," he urged. The process is simple enough to do yourself for free, and these companies would take a significant cut of any successful compensation payout.
The final outcome of the FCA's investigation remains to be seen, but for once, the power seems to be shifting towards the consumer. By acting on this advice, drivers could not only secure a better deal in the future but also potentially reclaim money from past agreements that were unfairly priced.
