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February 27, 2024
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Car finance investigation explained as Money Saving Expert Martin Lewis urges drivers to use reclaim tool

Drivers who had car finance agreements before 2021 could be owed money if an official investigation finds they were charged too much for their car loans because of hidden commission arrangements.

The Financial Conduct Authority has launched a probe into ‘discretionary commission arrangements’ – but what does that mean for motorists, who is affected by the probe and who could get compensation?

The investigation relates to people who bought a car using motor finance before January 2021. Image: iStock.

What is the FCA investigating?

In January 2021, regulator the FCA banned something known as ‘discretionary commission arrangements’.

This put a stop to lenders allowing car dealers – or brokers – to increase the interest rate on a car finance deal in order to earn more commission from the sale. Typically the higher the interest rate, the more money a broker stood to earn.


However, says the FCA, there have since been ‘a high number of complaints’ from customers to vehicle finance firms claiming compensation for commission arrangements made before the ban was put in place. While the Financial Ombudsmen Service also recently found in favour of two complainants who had had their initial case rejected.

This has prompted the FCA to launch its own investigation to review historical motor finance commission arrangements and sales. It has reportedly already heard from more than 10,000 people who believe they were charged too much for their loan.

The issue applies to both Personal Contract Purchases – where customers made loan repayments followed by the option to pay a larger balloon payment at the end in order to own the car – and hire purchases in which the total value of the car was or is being paid-off in monthly instalments.

Discretionary commission arrangements created an incentive for brokers to increase how much people were charged for their car loan. Image: iStock.

When will the investigation finish?

The FCA investigation is expected to be complete by September this year – albeit there is always the possibility it will extend.

As a result it has also paused an eight-week deadline motor finance firms had to respond to complaints. Which means, that while some cases may be progressed, companies can wait to hear the findings of the FCA probe before replying.

Those drivers who have already complained – but are unhappy with the response already received – have also been given longer to take their case to the Ombudsman for review.


Usually, you have to take your complaint to the Financial Ombudsman within six months of getting a final response from your provider, but this has been extended by 15 months if you were sent a final response between July 12, 2023 and November 20, 2024.

Drivers who think loans they had could be affected can use a tool on the Money Saving Expert website. Picture: iStock

What happens then?

If commission arrangements are found to have been at fault the FCA says it will establish a way to compensate people who had a loan affected by the practice.

In a statement it explained: “If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance.”

It is not clear how much that money could total.

If the investigation finds loans were mis-sold millions of drivers could be in line for compensation. Image: iStock.

Could I be owed money and how would I claim?

Drivers will need to have bought their vehicle, and arranged their finance, before January 28, 2021, to be considered eligible for any payout should the investigation find in their favour.

The FCA estimates 95 per cent of car finance deals had some form of commission model – and potentially around 40 per cent a discretionary commission arrangement.

For now motorists should keep track of the investigation and see how it unfolds over the coming months.

However, Money Saving Expert Martin Lewis has launched a tool on his website to help guide people through the current investigation and to help them draft an email should they want to find out more about the car finance agreements they had in place, if they took them out before January 2021.

Money Saving Expert Martin Lewis.

This tool, says the website, should enable people to trigger their own complaint letter without the need to use a third-party claims management company, which could subsequently request a cut of any potential compensation.

More than a quarter of a million complaint emails were reportedly sent after just one day of the reclaim tool going live.

Writing on X, formerly Twitter, Mr Lewis said: “Car finance reclaiming update. Staggeringly after just 1 full day of our free complaint tool being live… 262,500 complaint emails have been sent.”

Mr Lewis added in a further post: “These numbers are off the charts – far bigger even than the closing days of the PPI (payment protection insurance) deadline.”

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