Car finance firms ‘facing headache’ over potential compensation claims
The emerging issue has the potential to be ‘on par’ with the PPI scandal, a consumer compensation expert has said.
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Your support makes all the difference.Millions of claims could be lodged by drivers who may have overpaid on their car finance, as the emerging issue has the potential to be “on par” with the PPI scandal, a consumer compensation expert has said.
The UK’s financial regulator is currently reviewing whether people could be owed compensation for being charged too much for car loans.
It is looking into hidden and unfair commission arrangements on loans taken out between 2007 and 2021.
What we are seeing through our member firms who are engaging with consumers at the moment is that actually each person has an average of about 2.3 claims
Simon Evans, the boss of trade group the Consumer Redress Association, which represents claims management companies, said that people are likely to have bought more than one car during that period.
This could more than double the number of claims that come through.
It comes after consumer expert Martin Lewis revealed earlier this month that 1.1 million people had submitted complaints through a free tool on the MoneySavingExpert.com website, which he founded.
He described the number of complaints as “staggering” and suggested that car finance mis-selling could be the “second biggest reclaim payout in UK history” after the PPI scandal.
That saw UK banks pay out billions of pounds in compensation to customers who were mis-sold personal protection insurance from the mid-1990s.
Mr Evans suggested that the scale of those affected has the potential to be “on par” with PPI.
“If you think about the number of people who have bought cars in the last decade-and-a-half, there is a swathe of people who will have bought it in that way,” he said, referring to the discretionary commission arrangements.
“What we are seeing through our member firms who are engaging with consumers at the moment is that actually each person has an average of about 2.3 claims.
“So they have had two or three cars in that period and all of those qualify for a claim.”
This is likely to cause a “large headache” for car finance companies, Mr Evans said.
But he added a “note of caution on the good work Martin Lewis is doing”, suggesting that while many people will have downloaded the template complaint letter, it may not mean that they will all have taken the next step of sending it to their lender.
Meanwhile, the chief executive of the Financial Conduct Authority (FCA), Nikhil Rathi, recently downplayed comparisons with the long-running PPI redress.
He said he did not anticipate the car finance issue “playing out as PPI did”, partly because the watchdog has intervened earlier.
Lloyds Banking Group, which owns Black Horse, the UK’s largest car finance lender, said last month it was setting aside a provision of £450 million to cover potential costs related to the FCA’s review.
That includes the potential compensation for consumers as well as administration costs in dealing with complaints.
And Close Brothers Group, which has a motor finance arm, revealed plans to bolster its finances by £400 million as it prepares for the impact of the investigation.
The watchdog is expected to set out its next steps from the review by the end of September.