As potential remedies increase, victims of auto finance claims are advised to file complaints

As the road to the end of the car finance saga seems to be getting longer, lenders are putting more money aside

Amidst an ongoing Financial Conduct Authority (FCA) investigation, one of the biggest auto finance companies in the UK has allocated additional funds for compensation.

Before 2021, lenders and dealers collected unjustified commissions from consumers, which is the subject of the auto finance scandal.

In January 2021, the FCA outlawed discretionary commissions on auto loans, including Hire Purchase (HP) and Personal Contract Purchase (PCP). But after receiving what it called a "high number" of customer complaints regarding auto loan sales that took place before the ban, the City watchdog stepped in last year.

As it examines the larger industry, it has instructed lenders to put a hold on complaint investigations until December 2025.

The large UK bank Lloyds had already allocated 450 million for possible compensation. Through its Black Horse brand, it is a major auto finance provider.

Lloyds, however, has now stated that it is getting ready for an extra 700 million, bringing the total cost to over an billion dollars.

To offset compensation payments to consumers who were misled about auto loans between 2007 and 2021, companies could legally lower their corporation tax bills, according to the Treasury.

Santander has set aside 295 million, while Barclays has set aside 90 million. Other banks have also made provisions.

Since lenders will be able to deduct the charges from their corporation tax bill, the Treasury has attempted to step in and is reportedly worried about the effect on the overall economy.

According to the FCA, drivers who believe they were misled about auto financing should file a complaint with their lender.

At the end of 2024, Financial Conduct Authority (FCA) bosses told the Commons Treasury Committee that the situation was "one unholy mess" that would take a long time to fix.

Labour MP Dame Meg Hillier questioned the FCA about its recommendations for those impacted by the scandal and accused lenders and dealers of not being open and honest with their clients.

The financial regulator's chief executive, Nikhil Rathi, stated: "If you are unhappy with the conditions of your financing agreement, you should get in touch with your lender and file a complaint if you are worried.

There have probably already been hundreds of thousands of complaints. The largest financial product compensation plan since the Payment Protection Insurance (PPI) scandal may result from the scandal.

Who is affected?

You may be eligible for reimbursement if you purchased a car, van, or motorcycle before January 28, 2021, through hire purchase (as opposed to leasing) or PCP (personal contract purchase).

Initially, when the FCA was looking into complaints about motor finance, a discretionary commission arrangement (DCA) was at play.

However, a historic Court of Appeal decision in October expanded the case to include additional "hidden" commission payments and increased the likelihood that millions of drivers would get payouts.

According to a Court of Appeal ruling involving lenders Close Brothers and FirstRand Bank, it was illegal for auto dealers to receive a commission without notifying and obtaining the consent of their customers. The ruling favored consumers. Both DCAs and fixed commissions were covered by the ruling. Lenders both plan to file an appeal. and the industry awaits a ruling on this from the Supreme Court.

This month, the Treasury also tried to get involved in the case, but the court turned it down.

The regulator has extended the complaint pause deadline to December 4, 2025.

"Many customers who purchased a car through a dealer with financing may be entitled to compensation as a result of the Court of Appeals order," Rathi says. "We want to make sure that the millions of people who depend on the auto finance market continue to get competitive offers, and that consumers who are owed money receive it in a systematic manner.

According to Rathi, businesses must make use of the extra time to ensure that they have the resources required to look into and address complaints by the end of the extension period. He went on to say that businesses should think about whether they need to make financial provisions.

What is the market review of FCA motor finance?

On January 28, 2021, the FCA outlawed discretionary commissions for personal contract or hire purchase auto finance agreements because it believed that they would encourage brokers to raise the cost of auto loans.

Nonetheless, the City watchdog expressed concern about the volume of complaints that businesses are dismissing regarding the matter, which are subsequently upheld when contested through alternative means.

According to it, businesses are dismissing the majority of complaints because, in light of the relevant legal and regulatory requirements, they believe they have not acted unfairly or caused their customers to suffer losses.

But in recent cases, the Financial Ombudsman Service (FOS) has upheld issues that firms had rejected, and the FCA believes this could lead to a sharp rise in additional complaints. The county courts have also heard claims, some of which have been upheld.

This indicates a substantial disagreement between some businesses and customers regarding whether businesses have violated legal and regulatory obligations, the regulator said.

In January 2024, it started the review of the motor finance market.

As part of its broader review of the industry and these sales, the FCA has exercised its authority to suspend all complaints regarding DCAs until December 4, 2025.

Would clients be compensated?

Any possible remedies will be contingent upon the findings of the FCAs review, which is presently in progress.

Earlier this year, the FCA stated, "If we discover widespread misconduct and that consumers have suffered, we will determine the best course of action to ensure that those who are entitled to compensation receive a suitable settlement in a systematic, consistent, and effective manner and, if required, resolve any contested legal issues of general importance."

The Commons Treasury Committee was informed that a more precise understanding of whether a "structured redress system" that would either mandate that consumers file complaints or guarantee that businesses revisit cases and provide compensation would develop this year.