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Millions of UK Drivers Eye Payouts as Watchdog Zooms into Car Finance Investigation


hidden comissions
In 2021, discretionary commission arrangements were prohibited due to apprehensions that they provided car finance brokers and dealers with a motivation to increase interest rates on customer loans



UK auto lenders may face compensation payouts exceeding £1bn as the Financial Conduct Authority (FCA) launches an investigation into historical commission agreements by car dealers.


The FCA's inquiry focuses on interest-linked deals provided by motor finance companies, triggered by a surge in customer claims reminiscent of the payment protection insurance (PPI) scandal from the 1990s. In the PPI scandal, banks faced significant fines and compensation claims for mis-selling insurance products to millions of customers.


In 2021, the FCA prohibited discretionary commission arrangements, where car dealers could set interest rates in customer contracts. The regulator argued that such arrangements incentivised brokers and dealers to increase interest rates on customer deals.


The FCA acknowledged a "high number" of complaints from individuals who secured car finance before the ban, expressing concerns about excessive charges. Recent rulings by the Financial Ombudsman Service favou



red complainants, and some consumers achieved success in county court cases. Consequently, the FCA has decided to leverage its authority to conduct an investigation.


The current investigation aims to assess how several firms applied commissions before the ban, responding to numerous compensation claims for agreements predating the ban. The FCA expressed its commitment to ensuring appropriate settlements for consumers if widespread misconduct is identified.


The regulator highlighted that many complaints were rejected by motor finance groups claiming they acted fairly and within legal and regulatory requirements. The investigation's scope is yet to be disclosed, but the FCA estimated that its 2020 ban would save consumers about £165mn annually.


If the annual compensation is indicative, the industry may face a total bill of approximately £1.3bn. The FCA started overseeing the motor finance sector in 2014.

The investigation follows two Financial Ombudsman Service rulings favouring consumers, which the FCA anticipates will lead to a significant increase in car finance claims. Complaints management companies are expected to play a significant role.


The FCA urged motor finance providers to temporarily pause handling complaints for around nine months during the investigation. The move has been welcomed by industry observers, drawing parallels between the current issue and the PPI scandal, citing similar tactics used by auto lenders on an equally large scale.



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