Watch out for rogue car finance claims firms

Plans are under way to issue compensation for millions of mis-sold car finance deals later this year. And Which? is warning of dodgy claims management companies and scam risks. 

Which? has concerns that some claims companies are exhibiting misleading sales practices, gathering significant sensitive data and withholding key information about fees. Which? has also previously found evidence of potential scam firms operating.

Around 14 million car finance agreements are expected to be eligible for compensation, with payouts expected later this year. The Financial Conduct Authority’s compensation scheme will enable victims of car finance mis-selling to claim money back without incurring costs. The formal compensation scheme will be announced soon, but the FCA has previously committed to a scheme that is ‘simple for people to use and lenders to implement’.

Below, we explain some of our findings and how you can claim for free.

Car finance claims management companies

Which? has seen dodgy ads for car finance claims services landing in inboxes, doorsteps and appearing in social media feeds.

In one email, the claims company instructed recipients to visit a website that asked for their car’s licence plate to check if they were eligible to make a claim. The email included a disclaimer stating that it was not regulated by the FCA or the Solicitors Regulation Authority (SRA), meaning that you’re not protected if things go wrong. It can also be a sign that a firm is fraudulent.

While the email didn’t say how much you’d be charged, it stated that you wouldn’t pay anything unless you won your claim, and then the legal fees would be deducted from the compensation recovered. A legitimate firm should be upfront and clear about all fees you may be charged for using its service. 

In another example Which? came across, the firm stated that it charged a fee of 15-30% plus VAT for successful claimants. The FCA expects the average motorist to receive roughly £700 in compensation. With a 30% fee, that’s a £210 deduction – even before 20% VAT is deducted.

Those thinking of using a claims management company should also know that you would normally expect to pay a cancellation fee if you cancel the service after the 14-day cooling-off period.

Concerningly, some adverts we’ve seen appearing on social media ask for a significant amount of personal data to ‘process your claim’. Personal and sensitive information – such as name, address and date of birth – in the wrong hands could be very damaging and vulnerable to scams. 

Read more: What you need to know about car finance mis-selling.

What to do if you’ve already used a claims management company

If you have already agreed to use a claims management company and you no longer wish to, you can cancel. You may have to pay a cancellation fee if you cancel 14 days after signing up. 

If you believe you have been misled into using a claims firm, you should make a formal complaint to it directly. You can also complain to the Legal Ombudsman and the SRA. 

Which? shared its findings with the SRA and it told us:

‘The high-volume claims sector has been an area of concern for us for some time. This includes claims related to motor finance and we work closely with the Financial Conduct Authority (FCA). 

‘Our concerns include making sure that consumers that sign up to make claims have all the relevant details available to them so that they can make informed choices.

‘Law firms that carry out work for those that do claim are entitled to charge a fair fee for their work, but they should make clear what those charges will be to consumers before they sign up.

‘Firms need to be able to demonstrate that any charges relate to work that’s been carried out, and in some cases, our rules state a maximum amount firms can charge.

‘Any consumers who feel they have been billed unfairly should first complain to the law firm, and then to the Legal Ombudsman if they are not satisfied with the outcome. If we have evidence that firms have breached our rules, we will take action.’

How to claim car finance compensation yourself (and for free!)

First, you should check to see if you could be eligible for the car finance compensation. 

The FCA is due to announce when the compensation scheme will open and the exact process for claiming. When it does, you will be able to claim for free without the help of any claims management company.

You can use Which?’s free letter template to let your lender know that you believe you’ve been overcharged and you wish to make a complaint. If you’re not sure who your lender was, you can ask the dealer, check your bank statement or your credit report. 

If you do choose to use a claims management company, you should make sure it’s on the FCA register before continuing and make sure any law firm is registered with the SRA by checking its register. You should also make sure you are fully aware of all fees that may be charged.