More than a million people could receive thousands of pounds worth of compensation from dodgy car finance deals, with money-saving expert Martin Lewis urging motorists to check if they can be included in the refund process.
Drivers who bought a car, van or motorbike on PCP or hire purchase between April 2007 and 28 January 2021 could owe thousands of pounds after the Financial Affairs Authority launched an investigation into the Motor Finance Commission.
Motorists began complaining to lenders about compensation for commission arrangements before the introduction of changes to the law in 2021, when the financial regulator banned car dealers from using models that would incentivize them to raise costs for drivers.
Discretionary Commission Arrangements (DCAs) allowed lenders to raise interest rates without telling customers what additional costs they would have to pay.
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The FCA is expected to rule in September
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Martin Lewis initially suggested the scandal could be as big as the PPI scandal, predicting that millions of drivers could share in compensation in a settlement that could exceed £1bn.
In early February, the finance expert set up a free car finance complaints tool, which saw more than a million complaints from people in just one month.
The investigation is due to end on September 25, with drivers having until then to check whether they are entitled to compensation after being mis-sold car finance.
In the latest Weekly Money Tips newsletter, Martin Lewis said the “clock was ticking” for the financial regulator to make a major decision.
He added: “Since the investigation was announced in January, 1.7 million complaints have been made through our free tool alone.
“This investigation is due to end on 25 September and, on a conservative estimate, if the FCA decides in favor of the bulk payouts, it could equate to £750m paid out for complaints made through the tool.
“As the ruling approaches, I want to go through how to complain for those who may be eligible, and because I’m inundated with questions from those who are, explain the next steps if you’ve already complained.”
Figures from the Financial Conduct Authority suggest that 40 per cent of car finance contracts had a DCA, although Martin Lewis suggests the total is actually much higher – potentially as much as 74 per cent – although it varies by lender.
If someone has already used the complaints tool on the Money Savings Expert website and has been told they have a DCA, the complaint has been recorded and they won’t have to act until the FCA makes a decision in September.
When the driver in question receives a notification that they didn’t have a DCA when they got their car finance, they haven’t been overcharged, even though it also means they won’t get paid.
Some motorists may see that their complaint has been “acknowledged”. While it can be frustrating to see no progress made with their complaint, it has been recorded so there may only be a delay with the car hire or other related companies.
Using Martin Lewis’ complaints tool, Black Horse received 17 per cent of notifications, VW Financial Services (excluding Audi) received nine per cent and MotoNovo and Santander both accounted for eight per cent of complaints.
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More than 1.7 million people have used MSE’s car finance complaints tool
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Many major lenders have already set aside hundreds of millions of pounds in preparation for paying high compensation rates.
Martin Lewis previously said a redress scheme could be introduced where creditors pay compensation to all affected customers or pay out money based on a “set formula”.