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Investigation into whether car finance firms owe compensation to millions of customers extended while finance regulator considers redress scheme
A major probe into whether people overpaid on their car loans has been extended, as the UK’s financial watchdog said it could decide to set up a scheme to compensate consumers.
The Financial Conduct Authority (FCA) has said it is giving motor finance companies more time to respond to customer complaints.
Alex Neill, co-founder of Consumer Voice, said:
‘This is a big delay from the regulator and will feel disappointing to everyone waiting for a decision.
However it certainly suggests there’s a case to answer for car finance firms. So people may be consoled by the fact that although they will have to wait longer, they could be a step closer to ultimately getting compensation.’
Read our car finance guide to find out if you could be owed money, and sign up to stay updated about the FCA’s investigation.
Concerns about car finance loan overcharging
The review was launched at the start of the year following concerns that a large number of people may have been overcharged for their car loans through discretionary commission arrangements.
The selling practice, which was banned in 2021, was used by some brokers to adjust the interest rates they charged customers so that they could receive more cash in commission.
The FCA warned car finance companies in April to hold back cash to cover the costs of its regulatory probe into car finance loans
Extension in review of widespread misconduct
The FCA said it was looking for evidence of widespread misconduct, and considering whether it should set up a formal redress scheme which could see people compensated in an ‘orderly and efficient way’.
Today, the watchdog said it was assessing thousands of records spanning 14 years.
Delays in receiving the data it needs means an update on the review will not be provided by the end of September, as previously planned.
The regulator is now expecting to set out the findings of its work in May next year.
Consumer compensation scheme now ‘more likely’
The FCA said this extension would give it enough time to potentially consult on a consumer redress scheme relating to discretionary commission arrangements.
This is ‘more likely than when we started our review’, the FCA said.
Lloyds, which owns car finance firm Black Horse, said earlier this year that it was setting aside about £450 million to cover potential costs relating to the issue and any compensation payouts.
Meanwhile, Barclays is currently seeking a judicial review of a ruling by the Financial Ombudsman Service that it treated customers unfairly over their car finance agreements.
The FCA said it was taking this into account with its own investigation as it will ‘consider legal issues highly relevant to our review’.
The £1 billion consumer class action against UK car finance firms launched by consumer advocate Doug Taylor last year is currently on hold awaiting the outcome of the FCA’s investigation.
Car finance companies complaints handling
The FCA paused the 8-week deadline for car finance companies to respond to consumer complaints when it launched its investigation.
It said: ‘We introduced the pause to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we assessed the issue and determined the best way forward.’
Motor finance firms could be given until December 2025 at the earliest to respond to complaints.
Related claims
Lloyds Banking Group, MotoNovo and Santander accused of striking deals that resulted in 1m consumers overpaying £1bn on car finance.
Jaguar Land Rover faces a legal battle over complaints that faulty parts are impacting the reliability of a range of its diesel cars. Sign up to the claim.
A £150m lawsuit claims five major shipping companies charged millions of motorists and businesses too much for the delivery of new cars and vans.
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