It’s the scandal dubbed ‘PPI on Wheels’, but last week five judges at the Supreme Court dealt a blow to millions of drivers hoping for a payout on their car finance deals.
There will be no compensation for customers who were simply unaware commission was being paid when they took out car finance, with the judges declaring this was not enough to count as mis-selling.
But they did say motorists could still qualify if they meet certain conditions.
Car buyers who took out deals between 2007 and 2021 could potentially claim, if the deal was deemed ‘unfair’.
Following the ruling, the Financial Conduct Authority (FCA) said it would consult on a scheme where compensation could be paid to victims next year.
Verdict: Last week the Supreme Court dealt a blow to millions of drivers hoping for a payout on their car finance deals
What is the finance scandal about?
It focuses on ‘secret’ commission paid by lenders to dealerships which promoted loans, often when selling vehicles as part of a personal contract purchase (PCP) or hire purchase (HP), agreement between 2007 and 2021.
Two million cars are purchased using finance deals every year and as many as 6.6million people unwittingly signed up to a discretionary commission arrangement (DCA) – where they paid more in loan interest than they should have done, in a ruse which bumped up the commission salesmen could earn.
The FCA calculates a buyer could have paid £950 more than necessary due to these commission payments.
The car finance industry could still be forced to pay out as much as £18billion to compensate customers who were unfairly sold finance deals.
However, the Supreme Court rejected a need to pay compensation for motorists simply being unaware commission was paid. This could have more than doubled the industry bill to £44billion.
This potentially huge payout led to car finance being dubbed PPI on Wheels after the £50billion Payment Protection Insurance (PPI) scandal of the late 1990s and early 2000s, where customers were mis-sold insurance cover as an add-on to loans, credit cards and mortgages.
Who will get a payout?
Buyers who the judges believe were treated ‘unfairly’ when they took out a DCA should get payouts.
This is where the interest rate offered to a customer could vary depending on the level of commission the lender would pay the car dealer.
You will not automatically get a payout just because you had a DCA and the criteria has yet to be decided by the FCA.
But if the amount is deemed not to be ‘fair and proportionate’ and involves paying ‘high commission’ you should receive compensation.
Who won’t get a payout?
Those who took out finance that did not involve a DCA are not expected to receive any money.
Even if you did take out a DCA and were totally unaware that any commission was paid, you may still receive nothing if the amount is deemed by the regulator to be fair.
The FCA has yet to decide how this will be measured and the amounts that will be paid.
Unfair: The interest rate customers were offered could vary depending on the level of commission the lender would pay the car dealer
How do I know if I have a DCA?
The devil is in the detail of the contract, and it may be written in a way that makes it unclear.
This is a key reason why the crisis arose – because buyers were not even aware commission was being paid.
Contact both the lender and the dealership and ask them directly. The FCA says: ‘They are obliged to tell you.’
As soon as you realise it was a DCA, put in a formal complaint. They must confirm receipt of this within eight weeks. But any potential payouts are on hold until an FCA decision next year.
It is not only motorists who took out a PCP who may be due compensation but also those who took out a HP agreement.
It is the fact that the agreement involved a DCA which is important and that it was taken out between 2007 and 2021.
Should I sign up for a claims firm?
No. The FCA has been probing DCA agreements since January 2024.
In March, the watchdog said if after the Supreme Court ruling it thinks there was widespread harm to consumers from commission payments, then it could set up an industry-wide redress scheme.
This means drivers won’t have to go to court or use a law firm or claims management company to get the compensation they are owed.
If I have signed up, what should I do?
You cannot simply pull out. Read the small print of any contract you signed with a claims company as it may still be owed money if you receive a payout.
However, if they want to take a particularly large chunk of any compensation – such as half – then it might be easier to break any contract. The FCA says: ‘Exit fees must be fair and reasonable.’
Deals: Two million cars are purchased using finance deals every year and as many as 6.6m people unwittingly signed up to a discretionary commission arrangement
What paperwork do I need?
There is no need to panic if you cannot find the paperwork, but ideally you want a copy of the agreement that you made with the lender and car dealership at the time of the purchase.
Without this, you can still contact the lender and make a formal complaint and ask it to investigate. It must respond in eight weeks – but need not make any decision.
You must provide your name, policy number, date of agreement, vehicle number plate and address when you took out the agreement.
What do I check on paperwork?
You may go through it and still find no reference to commission – but that doesn’t mean you do not have a claim.
The important point is to complain to the lender and say that you intend to pursue it for compensation.
It will be up to the regulator to decide if it is going to chase them up to pay or not next year – and the lender should also have a copy of the paperwork.
What if no one has paperwork?
If the lender says it cannot find the paperwork, then ask the dealership who sold you the car.
The regulator says lenders should keep paperwork and will take a dim view of them losing documents. This may go in your favour.
However, if you have also lost the original paperwork, then you must go through bank receipts as proof of payments.
‘I reckon I’m owed thousands’
Retired doctor and IT consultant Clive Stainton believes he is owed thousands of pounds from signing finance agreements for vehicles over the past few years.
But the 65-year-old, from the Forest of Dean in Gloucestershire, believes the regulator is right to take time to work out what money might be owed.
He says: ‘We need to hold the lenders’ feet to the fire. I accept it takes time to unravel the details and hold lenders to account.’
Clive owns a Nissan Leaf which he purchased from new at the start of 2021 – paying £211 a month for three years before making a final payment of £8,400.
In 2019, he bought a second-hand £6,000 Mazda MX5 from a dealership. He and his wife Marion also bought a Mercedes Auto Sleeper motorhome for £70,000 in 2017 and paid just over £1,000 a month over five years before a final purchase lump sum.
Clive has spent hours going through paperwork to find finance agreement contracts and payments made.
But he admits he is still none the wiser on how much he might receive as the agreements are hard to understand.
He has written to all the car dealerships to say he will be pursuing them for compensation, providing all his personal details and copies of paperwork.
The lenders have all confirmed receipt of his complaints. There is nothing more for him to do until the regulator issues a decision next year.
- Think you may have been hit by secret commissions? Email: moneymail@dailymail.co.uk
