Millions of British motorists could be in line for significant compensation payouts following a major regulatory investigation into potentially unfair car finance deals. The Financial Conduct Authority (FCA) has launched a sweeping probe into historical discretionary commission arrangements that may have cost consumers thousands of pounds extra on their vehicle financing.
What Went Wrong with Car Finance?
The heart of the issue lies in a now-banned commission model that allowed brokers and car dealers to secretly increase the interest rate on finance agreements. Under these "discretionary commission arrangements," the higher the interest rate they charged the customer, the more commission the dealer earned.
This created a clear conflict of interest, with brokers incentivised to charge customers more rather than find them the best possible deal. The FCA banned this practice in January 2021, but millions of agreements signed before this date remain under scrutiny.
The Scale of the Potential Payout
Financial experts are describing this as the next major financial mis-selling scandal, with potential compensation figures that could rival or even exceed the Payment Protection Insurance (PPI) payouts. Early estimates suggest:
- Over 10,000 complaints being submitted to the Financial Ombudsman Service monthly
- Potential compensation claims ranging from £1,000 to £5,000 per vehicle
- Total industry liability potentially reaching billions of pounds
- Major lenders including Black Horse, Barclays Partner Finance and Santander involved
How to Check If You're Affected
If you purchased a car on finance before 28th January 2021, you may have been affected by these hidden commission arrangements. Key warning signs include:
- You weren't told about the commission arrangement when taking out the finance
- The interest rate seemed higher than advertised rates
- You felt pressured into accepting the finance offered by the dealer
- You weren't shown alternative finance options
What Happens Next?
The FCA's investigation is ongoing, with a decision expected in September 2024 about how firms should handle complaints and whether a broader redress scheme is necessary. In the meantime, consumers are encouraged to:
Submit complaints directly to your finance provider - clearly state you're complaining about discretionary commission arrangements.
Escalate to the Financial Ombudsman if your complaint is rejected or not resolved within eight weeks.
Keep all your paperwork - including your finance agreement and any correspondence.
With consumer groups reporting success rates as high as 70% for these complaints, this represents one of the largest potential consumer redress opportunities in recent years. The clock is ticking for millions of drivers who may have unknowingly paid over the odds for their vehicle finance.
