Martin Lewis has issued a stark warning to drivers about the risk of losing a significant portion of their car finance compensation to claims management companies. The MoneySavingExpert founder urged motorists to avoid handing over up to 30% of any payout, as the Financial Conduct Authority (FCA) raises concerns about poor practices in the sector.
Compensation scheme details
The FCA's proposed motor finance redress scheme could see an estimated 12.1 million people receive an average payout of £829 per agreement. The compensation programme, worth around £9 billion, covers potential mis-selling of motor finance agreements between April 2007 and November 2024, including personal contract purchase (PCP) and hire purchase deals for cars, vans, motorbikes, and campervans.
However, the FCA has warned that compensation payments are unlikely to begin before 2027 due to legal challenges against the scheme. Despite delays, Martin Lewis emphasised that drivers do not need to use a claims management company to pursue a complaint.
Martin Lewis's advice
Writing in the latest MSE.com newsletter, Martin said: "There's no need to use a claims management company for the FCA's mass redress scheme. After all, the finance firm must contact you if you were mis-sold, even if you don't complain, so why give up 30%+ of your payout?"
While firms are required to contact affected customers, Martin suggested that motorists should still submit a complaint themselves to ensure they are identified and placed in the queue for any future payouts.
FCA concerns about claims firms
The FCA has identified "serious and unacceptable harm" caused by some claims management companies in the motor finance compensation market. Examples include consumers being signed up without full understanding, or being misled about fees, costs, or the likelihood of success.
The regulator has issued fresh guidance for claims management companies and launched a template complaint letter for consumers who believe they have been treated unfairly. Grounds for complaint include being signed up without consent, pressured into using a claims company, misled about fees, or not informed about cancellation rights and free alternatives.
How to cancel a claims firm contract
Consumers who decide they no longer want to use a claims company have the right to cancel their contract, although firms may charge a reasonable fee reflecting work already carried out. The FCA has stated that any cancellation fee should be proportionate and reflect the amount of work completed.
If unhappy with the response from a claims firm, complaints can be escalated to the appropriate ombudsman service. For FCA-regulated claims management companies, this is the Financial Ombudsman Service; for solicitor-led claims firms, the Legal Ombudsman.
Car finance mis-selling explained
Many cars are bought using car finance deals, with around two million sold by this method each year. These typically involve an initial deposit and monthly instalments with interest payments. However, many historic deals have been considered potentially unfair following investigations.
The scrutiny focuses on discretionary commission arrangements (DCAs), which were stopped by regulators in 2021. DCAs allowed brokers, including car dealers, to increase interest rates on car loans to get more commission.
Who is affected and how much?
Anyone who took out a motor finance agreement between April 6, 2007 and November 1, 2024 for a car, motorbike, campervan, or van may be affected. Firms are expected to pay out compensation totalling around £7.5 billion, with the average payment per deal at £829.
Martin Lewis advised motorists to check their agreements and submit a free complaint via the MSE.com guide, as it is currently impossible to know if an agreement was mis-sold without checking.
