Potential Compensation Delays for Mis-Sold Car Finance Agreements
People who were mis-sold car finance agreements may face delays in receiving potential compensation following a significant Court of Appeal decision regarding hidden commission payments.
The vast majority of new and used cars are purchased through finance agreements, with approximately two million such sales occurring annually. Customers typically pay an initial deposit followed by monthly payments with interest. In 2021, the Financial Conduct Authority (FCA) banned commission deals where dealers received payments based on the interest rate charged to customers, recognizing this created an incentive to impose higher-than-necessary rates.
A landmark Court of Appeal ruling has dramatically expanded the scope of potential compensation. The three judges unanimously determined that it would be illegal for lenders to pay commissions to dealers without the buyer’s informed consent. This means customers must be clearly told about and agree to commission amounts, rather than having such details buried in complex loan terms.
Marcus Johnson, a 34-year-old from Cwmbran, exemplifies the issue. When purchasing his first car, a Suzuki Swift, in 2017, he was unaware that the dealership was receiving a 25% commission added to his repayment amount. Johnson described feeling “heartbroken” upon learning about the additional costs, noting he had no alternative but to use finance at the time.
Following the court decision, banks have already set aside millions of pounds for potential compensation. Analysts estimate the total compensation could reach £16 billion, with some lenders temporarily halting new deals.
The FCA is now consulting on providing dealers additional time to handle potential complaints. This could include extending response times, particularly for individuals previously told they had no compensation claim. The regulator wants an “orderly compensation system” and is seeking a quick Supreme Court decision on whether to reconsider the Appeal Court’s ruling.
The Finance and Leasing Association has described the FCA’s approach as a “sensible move.” However, some lawyers argue that this could further delay compensation for car buyers who may not have given informed consent for commission payments.
The situation is complex and evolving. The court’s decision potentially opens the door for compensation for a much broader range of car finance agreements than initially anticipated. Customers who purchased vehicles through finance between 2017 and 2021 might be eligible for compensation if they were not explicitly informed about dealer commissions.
Consumers are advised to review their past car finance agreements and consider seeking legal advice if they believe they were mis-sold a finance package without full transparency about commissions.
The ongoing saga highlights the importance of financial transparency and consumer protection in automotive financing, with potentially billions of pounds in compensation at stake.
