Thousands ‘overcharged’ for PCP car loans could be in line for compensation
Thousands of people who complained they were overcharged on their car loans could be eligible for compensation.
The Financial Conduct Authority (FCA) banned discretionary commission arrangements in 2021 but has now started a probe into historic deals in the industry.
These arrangements meant brokers set a high interest rate for customers in order to make a better commission. Essentially, higher rates led to higher commission payments for the firms or brokers offering the finance.
This includes hire purchase agreements, such as Personal Contract Purchases, a popular way of spreading the cost of your next car.
The FCA found there was a conflict of interest between the rates being offered to consumers and broker commissions.
While it investigates, it is pausing customer complaints that have been or will be received by firms from 17 November 2023 up to 25 September 2024 – a period of about nine months.
“If we find there has been widespread misconduct and we find consumers have lost out, we will identify how best to make sure people who are owed compensation receive appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance,” the FCA said.
With immediate effect, the regulator is pausing the eight-week deadline by which motor finance firms have to respond to complaints about credit arrangements where there was a discretionary commission between lender and broker.
The Financial Ombudsman Service (FOS), which investigates consumer complaints, welcomed the FCA’s move, saying it had already heard from thousands of people who felt they had been overcharged for their car loan.
“We’ve heard from more than 10,000 people who fear they were charged too much for their finance, and we know many more are waiting in the wings,” said Abby Thomas, chief executive at FOS.
“We’ve resolved two complaints where we found that the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer.
“Our decisions could signal the way forward for many more similar complaints that have not been resolved between firms and consumers.”
These successful complaints – against commissions that were charged prior to the 2021 ban – come as others have also been upheld in the County Courts.
The FCA said this created confusion for firms, who felt they were justified in dismissing complaints about commissions charged prior to the ban, and for consumers, who had seen some receive compensation but might not be able to secure it for themselves.
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