AN industry-wide car finance scandal that has been the subject of UK Supreme Court proceedings has sparked scrutiny over whether Islanders have been exposed to unfair agreements – and could be eligible for compensation.
Jersey Consumer Chairman Carl Walker told the JEP he had written to more than a dozen finance firms that offer car loans with offices in Jersey, regarding the redress scheme recently announced by the UK’s Financial Conduct Authority.
It follows an extensive review of motor finance agreements by the FCA that found “widespread failures to adequately disclose the existence and nature of commission and contractual ties between lenders and brokers”.
What has this meant for customers?
The review included analysis of agreements where there was no evidence that customers were told about a discretionary commission arrangement, where the broker – often a car dealer – could adjust the interest rate being offered to obtain a higher commission.
“Inadequate disclosure means consumers were unable to make informed decisions and less likely to negotiate or shop around,” the FCA explained in a statement.
“Consequently, many may have overpaid on car finance.”
The scandal has been subject to Supreme Court proceedings, with a recent ruling seemingly narrowing the opportunities for compensation on the basis that lenders are not automatically liable for undisclosed commissions – though unfair agreements could still be open to challenge.
Last month, the FCA stated that a proposed compensation scheme would consider relevant agreements taken out between 6 April 2007 and 1 November 2024.
The regulator estimated that those who are eligible for compensation could receive around £700 per agreement on average, with lenders potentially paying out billions in compensation depending on how many people take part in the scheme.
What is the Jersey Consumer Council doing?
In his letter, Mr Walker wrote: “As you may be aware, following a prolonged investigation, the FCA concluded that many consumers in the UK were unknowingly charged higher interest rates on car loans due to commission structures that incentivised brokers or dealers to increase the cost of credit.
“These arrangements were not always disclosed to consumers, raising serious concerns around transparency and fairness in the motor finance market.”
Mr Walker continued: “As a result, the FCA has imposed a temporary pause on certain complaints and claims while it assesses the extent of consumer harm, with a view to implementing a formal redress scheme.
“It is expected that, where such practices are confirmed, firms will be required to reimburse affected customers.”
He noted that, while the scheme was being implemented in the UK, “many of the same lenders and intermediaries also operate within the Crown Dependencies”, including Jersey and Guernsey.
“Given the structural and commercial similarities in the way vehicle finance is offered across these jurisdictions and the common practice of using UK-based finance companies and brokers, we are seeking clarification on the potential implications for consumers in the Channel Islands,” he explained.
The letter seeks clarity on a number of points, including whether the firms had paid commission to car dealerships, brokers, or individual sales representatives as part of any car finance agreements offered to customers in Jersey or Guernsey – and if this was disclosed at the time of entering into the agreement.
It asks whether they fall within the scope of the FCA scheme and, if they are not legally required to comply with it in the Channel Islands, whether they “intend to honour the same principles of consumer protection and transparency” by extending equivalent redress to affected Islanders.
Speaking to the JEP, Mr Walker added that: “One of the many things the Council advocates for is transparency for consumers.
“We felt it was absolutely justified to ask local finance firms if they had been paying commission to car dealers without that being spelt out to consumers, and whether these finance firms will do the honourable thing and follow the example being set in the UK.”
The JCC letter has asked the companies to respond by 14 November – a month after it was sent – as it looks to assess “the level of potential exposure for consumers in our jurisdiction” and whether similar compensation or redress measures “may be necessary or expected locally”.
Who is responsible for handling complaints in Jersey?
Chief executive of the Channel Islands Financial Ombudsman, Douglas Melville, said that motor finance complaints were “absolutely within our mandate”.
He said: “What you’ve got happening in the UK is a review, initially by our counterparts over there, the UK Financial Ombudsman Service.
“More recently, the Financial Conduct Authority has decided that they’re going to take a look themselves and are creating a restitution process that will look at cases and provide a fast answer and quick restitution for claims that are being made by consumers.”
Mr Melville described the local situation as “quite different”, noting that Jersey “does not yet have regulation in the lending and credit sector”.
He added: “We do not have a regulator here that has expressed an interest in having a separate, short and simple restitution process. They’re leaving these cases with us, is our understanding.
“What’s different with the cases here in Jersey is, because it’s unregulated, it’s not only the commissions paid to the motor dealer – there’s also issues of other disclosure, including interest rates.”
How many Islanders have brought complaints?
Mr Melville said that “we’ve only got a few cases here in Jersey and Guernsey”, adding that: “There are issues here, but we don’t have a high volume of complaints yet to see with any clarity what’s going on here and for how long.”
However, Mr Melville added that the approach that would be taken by the CIFO “in some cases may well involve higher amounts of compensation than would necessarily be emerging from the new process that’s been set in place in the UK”.
“Our approach is more akin to what the UK Financial Ombudsman would have done on these cases if the FCA had not intervened.”
Asked what the next steps would be, he said: “If the local residents bought a car on financing in the UK, then the developments in the UK are highly relevant to them.
“If they have bought a car on financing in Jersey or Guernsey, it falls into our remit to provide compensation if we think it’s warranted, and we would encourage any consumers that have those issues to contact our office.”
A scandal under the spotlight
Controversy surrounding discretionary commission arrangements started to gather speed at the start of 2024, when the FCA announced a review into whether motor finance customers had been overcharged as a result of their historic use.
Earlier this year the regulator said it was moving “at pace” following the Supreme Court judgement, which came in the wake of legal battles between lenders and consumers who claimed they had paid more than they otherwise would have done.
Last month, the FCA began consulting on an industry-wide compensation scheme, which it described as “the most efficient way to address the liabilities for those motor finance customers treated unfairly between 2007 and 2024” and to provide “certainty for all affected”.
Initial payouts under the scheme are expected before the end of 2026.
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