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March 1, 2024
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Car finance mis-selling investigation: what you need to know


Millions of UK drivers could land compensation as the finance sector watchdog launches an investigation into car finance mis-selling. 

The Financial Conduct Authority (FCA) says some customers ‘may have been charged too much’ on car finance loans before January 2021. 

Car finance is a £40bn industry in the UK, with more than 90% of new cars bought on finance, according to The Car Expert. 

Here, Which? explains what you need to know about the issue and what you need to know about making a complaint if you think you have been affected.

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What was the problem with car finance?

Before January 2021, some car finance lenders had ‘discretionary commission arrangements’ with brokers. 

This meant brokers were empowered to adjust customers’ interest rates, and they earned more commission when rates were higher.

Naturally, this may have incentivised brokers to maximise interest rates to make more money. So if you bought a car on finance via a broker with one of these arrangements, there’s a chance you were unfairly charged too much. 

The FCA outlawed this practice in January 2021, but a ‘high number’ have complained that they were overcharged before the ban. 

The Financial Ombudsman Service  (FOS) has said it has heard from more than 10,000 people who fear they were charged too much for their car finance. 

Lenders and brokers have rejected most of these complaints, as they believe they have not acted unfairly.

But now the FCA says it’s ‘examining the issue’ and using powers under the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.

How to find out if you are affected by the issue

The FCA says you may be affected by the issue if:

  • you bought a car under a finance scheme (such as hire purchase or personal contract purchase)  before 28 January 2021
  • there was a discretionary commission arrangement between your lender and broker

You might not already know if your broker and lender had a discretionary commission agreement, but they should be able to tell you if you contact them. 

The investigation won’t apply to you if you used car finance on or after 28 January 2021 or if you used a hire agreement such as Personal Contract Hire.

How much compensation could I get?

That’s not clear yet. The FCA says that if it does find ‘widespread misconduct’ and consumers have lost out as a result it will work out how to compensate people ‘in an orderly, consistent and efficient way’. 

In one of the Ombudsman cases that was resolved in favour of the consumer the buyer was found to have been charged 5.5% when they could have gotten 2.49% without the broker’s commission. 

The lender was told to pay the consumer the difference between the payments plus interest on each overpayment at 8%.

How do I complain?

First, contact the firm that sold your car finance product. Wait for their final response and, if you’re not satisfied, escalate your complaint to the Financial Ombudsman Service (FOS) after they reply.

A final response from the business may take a while though. The FCA has put a pause on the eight-week deadline for providers to get back to you while it carries out its investigation.  So providers will not have to respond to your complaint about this sort of car finance arrangement until after 25 September 2024 at the earliest.

However, you will get longer to refer your complaint to the FOS.  Typically, you’d have six months to take your complaint to the FOS after getting your final response, but the FCA has extended this referral window to 15 months for these types of car finance complaints while it carries out its work. This temporary rule applies to final responses received between 12 July 2023 and 20 November 2024

If your complaint is covered by these temporary complaint-handling rules, the business must tell you. Make sure you keep a record of any complaints you make, as this could be helpful in the future. 

What’s the best way to buy a car?

Buying a car outright with cash just isn’t an option for many consumers. That’s why a range of car finance options have sprung up to fill the gap.

You can buy a car on hire purchase, which means paying monthly for a car directly from a lender. You’ll own the car after your final monthly payment, but you’ll usually be responsible for servicing and insurance costs throughout. Monthly payments tend to be high with hire purchase. 

Another option is personal contract purchase. This involves paying a deposit, then monthly payments. After that, you can buy the car by paying another lump sum if you want to. The final lump sum can be quite expensive. 

Finally, personal car leasing involves a deposit and monthly payments, just like personal contract purchase, but you won’t have the option to buy the car at the end. You’re effectively renting it. 

If none of these suit you, you could also use a personal loan or 0% credit card to buy a car. 

  • Find out more: car finance explained –  learn more about your options, and see our expert reviews of car finance providers

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