This article is from the source 'bbc' and was first published or seen on . The next check for changes will be

You can find the current article at its original source at https://www.bbc.com/news/articles/c2l9vvj097lo

The article has changed 17 times. There is an RSS feed of changes available.

Version 13 Version 14
Car finance: What's behind the mis-selling complaints? Car finance: What's behind the mis-selling complaints?
(about 3 hours later)
Millions of motorists could be in line for compensation payouts if they were mis-sold finance agreements when buying a car. Millions of motorists have been denied a path to claim compensation for hidden commissions paid on car loans following a Supreme Court ruling.
Investigations are ongoing into activities by dealers and lenders – some of which have now been banned – which could eventually lead to an industry-wide payout scheme to consumers. The UK's highest court sided with finance companies in two out of three crucial test cases focusing on commission payments made by banks and other credit providers to car dealers.
A Supreme Court ruling on 1 August may extend compensation to a wider group of people, prompting huge debate among consumers and policymakers. The decision reversed earlier rulings by the Court of Appeal that had opened the possibility of industry-wide claims for compensation from motorists.
Some could still be in line for payouts, but questions remain who or how many will be eligible.
What's the scandal about?What's the scandal about?
The vast majority of new cars, and many second-hand ones, are bought with finance agreements.The vast majority of new cars, and many second-hand ones, are bought with finance agreements.
About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.
In 2021, the City regulator, the Financial Conduct Authority (FCA), banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs).In 2021, the City regulator, the Financial Conduct Authority (FCA), banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. These were known as discretionary commission arrangements (DCAs).
The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much.The FCA said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate, leaving them paying too much.
Since January, it has been considering whether compensation should be paid to people with these deals before 2021.Since January, it has been considering whether compensation should be paid to people with these deals before 2021.
Currently, any claims on this issue made to the ombudsman, which has 80,000 open cases, or the courts are effectively on hold. Any claims on this issue made to the ombudsman, which has 80,000 open cases, or the courts, were effectively on hold until a Supreme Court's ruling.
Who may be in line for payouts? The Supreme Court considered three test cases. The cases focused on whether commission payments made by finance companies to dealers, of which the car buyers were unaware, amounted to bribery - and whether the car dealers themselves had a duty to act on behalf of their customers, rather than in their own interests.
Potentially, millions of motorists could receive payouts, depending on how their interest rate was set and what they knew about it. Those who had a finance deal, which had a DCA, before 28 January 2021 could receive compensation. If upheld, this could have paved the way for millions to claim compensation, but the court ruled against two of the test cases, siding with finance companies.
This has narrowed the scope of people who will be able to claim compensation.
Who could still be in line for payouts?
Potentially, millions of motorists could still receive payouts, depending on how their interest rate was set and what they knew about it. Those who had a finance deal, which had a DCA, before 28 January 2021 could receive compensation.
This would likely be done through a central scheme, organised by the Financial Conduct Authority (FCA), which wants an orderly compensation system in place.This would likely be done through a central scheme, organised by the Financial Conduct Authority (FCA), which wants an orderly compensation system in place.
It would be simpler for consumers than filing a legal complaint and would require firms to check if customers had lost out.It would be simpler for consumers than filing a legal complaint and would require firms to check if customers had lost out.
This compensation could be wider depending on the outcome of the Supreme Court decision. This compensation will now not be as wide as it might have been following the outcome of the Supreme Court decision.
Guidance from the FCA revealed that any compensation scheme would have to be fair to consumers but not collapse the car market.Guidance from the FCA revealed that any compensation scheme would have to be fair to consumers but not collapse the car market.
Officials will decide within six weeks of the court decision whether a scheme will be run, although it would not be in place until 2026. The FCA said it would confirm on 4 August whether it would "consult on a redress scheme".
Details are still to be ironed out, such as whether it would require claimants to opt-in to the scheme. "Our aims remain to ensure that consumers are fairly compensated and that the motor finance market works well," it said.
How much could they receive?How much could they receive?
That is far from clear yet, but lenders – including some of the UK's biggest banks – have set aside billions of pounds already.That is far from clear yet, but lenders – including some of the UK's biggest banks – have set aside billions of pounds already.
A driver would likely receive the difference between the amount they paid at an inflated interest rate and the rate they should have been charged.A driver would likely receive the difference between the amount they paid at an inflated interest rate and the rate they should have been charged.
Interest of 8% on the overpayment would be added to that loss, which could significantly increase the payout.Interest of 8% on the overpayment would be added to that loss, which could significantly increase the payout.
Exact amounts would depend on individual circumstances.Exact amounts would depend on individual circumstances.
Lenders including major banks and specialist motor finance firms have set aside a total of more than £2bn for potential payouts.Lenders including major banks and specialist motor finance firms have set aside a total of more than £2bn for potential payouts.
Lloyds Bank has put aside £1.15bn, and Santander has allocated £295m.Lloyds Bank has put aside £1.15bn, and Santander has allocated £295m.
Financing companies have also set aside millions, including Close Brothers (£165m), Northridge Finance (£143m) and MotoNovo (through the bank FirstRand, £140m). Some of that money has been earmarked to cover legal and administrative costs.Financing companies have also set aside millions, including Close Brothers (£165m), Northridge Finance (£143m) and MotoNovo (through the bank FirstRand, £140m). Some of that money has been earmarked to cover legal and administrative costs.
The Financial Conduct Authority said any redress scheme would need to balance fairness to consumers who lost out, with ensuring the motor finance market remains robust. The Financial Conduct Authority has said any redress scheme would need to balance fairness to consumers who lost out, with ensuring the motor finance market remains robust.
Is this a wider issue?Is this a wider issue?
A decision by judges at the Court of Appeal at the end of last year has blown open the ongoing saga into hidden commission payments, with buyers possibly in line for payouts totalling billions of pounds. A decision by judges at the Court of Appeal at the end of last year blew open the ongoing saga into hidden commission payments, with buyers possibly in line for payouts totalling billions of pounds.
While the initial investigations surrounded discretionary commission arrangements, which were banned in 2021, the Court of Appeal decision widened the scope to any car finance commissions. But that is not the case anymore.
The three judges unanimously agreed that it would be illegal for the lender to pay any commission to the dealer without the informed consent of the buyer. While the initial investigations surrounded discretionary commission arrangements, which were banned in 2021, the initial Court of Appeal decision widened the scope to any car finance commissions.
In other words, customers should be clearly told how much commission would be paid, and agree to it, without those details being buried in the terms and conditions of the loan. The Supreme Court ruling means now that the scale of compensation payouts will be limited, but the fate for those who had DCA loans remains uncertain.
The decision on any payouts over the DCA loans lies with the FCA.
Martin Lewis, founder of Money Saving Expert, told the BBC he would be "gobsmacked" if there was not a scheme for DCA payments.
The test case involved Marcus Johnson, 34, who bought a Suzuki SwiftThe test case involved Marcus Johnson, 34, who bought a Suzuki Swift
The hearing included the test case of Marcus Johnson, 34, from Cwmbran, Torfaen, who bought his first car - a Suzuki Swift - in 2017. The one test case which was upheld by the Supreme Court was that of Marcus Johnson, 34, from Cwmbran, Torfaen, who bought his first car - a Suzuki Swift - in 2017.
He was not informed the car dealership was being paid 25% commission, which was added on to what he had to pay back.He was not informed the car dealership was being paid 25% commission, which was added on to what he had to pay back.
"I signed a few documents and then drove away in the car," he told the BBC."I signed a few documents and then drove away in the car," he told the BBC.
He said he had no option but to use finance when he bought the car, describing it as "heartbreaking" to find out so much extra money had been taken.He said he had no option but to use finance when he bought the car, describing it as "heartbreaking" to find out so much extra money had been taken.
"Someone in my situation at that time, not being able to buy that kind of age car with cash, you would use finance," he said. Mr Johnson said he was "pleased for myself" that his case was won, "but not for the hundreds of others" who will miss out. "It's a win, but it's a really big bag of salt to go with it."
The FCA said that the decision could lead to dealers and motor finance providers receiving a deluge of new complaints, and it is urging people to make a claim if they feel they were the victims of mis-selling. In his case, the Supreme Court said the terms of his finance deal were unfair due of the size of the commission payment, and the fact he was appeared to have been misled over the relationship between the finance firm and the dealer.
Under the FCA's plans, providers will have until December to consider and respond to complaints, aligning the deadline for firms to deal with discretionary and non-discretionary arrangement complaints. That could provide a template for other people to put forward claims.
Some could come from people previously told they had no claim for compensation because they did not have a discretionary commission arrangement.
But the Supreme Court has heard an appeal against the decision on the wider commission issue.
The total cost of compensation could reach £25bn or more, according to analysts.
When will the Supreme Court make a decision?
The hearing was in April and the judgement by the court judges will be announced on 1 August.
In February, the Supreme Court rejected an unusual intervention from the government, which was worried huge amounts of redress payments could upset the car market and make it less competitive.
It could also affect banks' ability to invest elsewhere as they would need the money for compensation.