- Written by Chris Newlands
- BBC News business reporter
image source, Getty Images
Britain's financial watchdog has warned people to hold off on cash for potential payouts as it continues its investigation into the car finance industry.
The Financial Conduct Authority (FCA) also revealed that firms were “struggling to provide data quickly” to investigations.
Approximately 17,000 people have already filed complaints with the Ombudsman.
These lawsuits concern fee arrangements between financiers and car dealers.
Some lenders allowed dealers to adjust interest rates to improve the fees they received.
As a result, these arrangements created an incentive for brokers to increase the amount people charged on their car loans.
In 2021, the FCA banned these discretionary fee arrangements following a review, claiming they would save drivers a total of £165m a year, or around £100-200 on their loans.
Given the potential compensation costs, some are drawing comparisons to the amounts paid during the Payment Protection Insurance (PPI) misselling scandal, which cost banks tens of billions of pounds.
Lloyds owns Blackhorse, one of the UK's biggest car finance providers, and is thought to be the most at risk of debt among the big banks.
At the time, Lloyd's chief executive Charlie Nunn told the BBC's Today programme: “The extent of any fraud or loss on behalf of our customers remains very uncertain, so we decided to take action against the FCA a few weeks ago. We welcome the announcement to investigate this matter.” To provide clarity to our customers and the industry. ”
Meanwhile, Barclays is challenging a ruling that says it paid unfair commissions to car finance brokers. When the FCA first announced its investigation in January, it cited two cases, including the 'Miss L' case, which was found to have fraudulently sold car loans from Barclays Partner Finance.
The Financial Ombudsman ruled that the bank had “failed to act fairly” because customers were not informed that the package included a £1,600 credit broker fee.
In its update on Friday, the FCA also said it was experiencing problems obtaining the information it needed from various companies to carry out its investigations.
“The companies involved in our review have engaged with us constructively, but many are struggling to provide us with the data we need quickly.”
What to do if you think you owe compensation for your car loan
If you bought a car on finance before 28 January 2021 and your finance provider and car dealer had a voluntary fee arrangement in place, you can claim compensation.
- The Financial Ombudsman Service advises that you first speak to your car dealer or financier to give them a chance to resolve the issue.
- If you are dissatisfied with the response, you can lodge a complaint with the Ombudsman
- Complaints may concern financial providers, credit brokers such as car dealers, or other credit intermediaries.
- If the Ombudsman decides to deal with your case, it says its aim is to put you back in the position you would have been in if the matter had not arisen
Guidance on motor finance complaints can be found on the Financial Ombudsman site here and guidance from the Financial Conduct Authority can be found here.
