A growing scandal over car finance deals has prompted regulators to urge dissatisfied buyers to file complaints with their lenders. Accusations of hidden commission payments by car dealers and lenders have cast a shadow over millions of car purchases, sparking what some describe as one of the biggest financial messes in recent years. The issue centers around commission payments made to car dealers when vehicles were purchased on finance deals. These payments, often tied to the interest rate charged to buyers, were not always disclosed to customers. Although such discretionary commission arrangements were banned in 2021, the ramifications are still unfolding.
Appearing before the Commons Treasury Committee, financial regulators described the situation as a “one unholy mess.” Dame Meg Hillier, chair of the Public Accounts Committee, criticized the lack of transparency from dealers and lenders. “If you are concerned about your car finance agreement, you should contact your lender and file a complaint,” advised Financial Conduct Authority (FCA) chief executive Nikhil Rathi.
Thousands of complaints have already been lodged by aggrieved car buyers, with many more expected. Industry analysts predict that this could lead to one of the largest compensation schemes in UK financial history, potentially rivaling the payment protection insurance (PPI) scandal. In a landmark ruling, the Court of Appeal recently expanded the issue to include other types of “hidden” commission payments, opening the door for millions of drivers to seek compensation. Banks and lenders have already set aside hundreds of millions of pounds in anticipation of payouts. However, the legal landscape remains murky. Mr. Rathi noted that different courts have interpreted the laws governing fixed and discretionary commissions differently. The FCA is awaiting a Supreme Court decision, which will likely provide further clarity.
The FCA has urged anyone dissatisfied with their car finance terms to file a formal complaint with their lender. This includes cases where buyers suspect their loans were mis-sold or where hidden commissions may have inflated the cost. In response to mounting pressure, regulators are weighing whether to implement a structured compensation system. This could involve either requiring individual complaints or proactively reviewing cases to ensure customers receive due redress.
The fallout from the car finance scandal may not stop at the auto industry. Analysts suggest the Court of Appeal’s decision could have implications for other sectors where “big ticket” items are purchased on finance, such as home appliances or luxury goods. Regulators are already scrutinizing these markets for potential issues.
During the hearing, MPs also pressed the FCA on its effectiveness, investment risks for consumers, and the rise of financial influencers. Critics argue that the regulator needs to take a more proactive stance to protect consumers from financial misconduct. With complaints continuing to mount, and a clearer compensation framework expected next year, the car finance saga is far from over. For now, the advice to car buyers is clear: if you feel your finance agreement was mis-sold, take action and file a complaint with your lender. This unfolding drama could reshape how finance agreements are handled, ensuring greater transparency for consumers in the future.
