FCA launches investigation into car finance mis-selling

FCA targeting “discretionary commission arrangements.”

Discretionary commission arrangements (DCAs) – which were banned from January 28^th 2021 - allowed car finance brokers and intermediaries, including car dealers and salespeople, to raise interest rates on an individual car finance deal artificially. As well as leading to higher repayments for the consumer, an increased rate also meant the salesperson received more commission.

The FCA says such practices are unfair because consumers were often not told about the commission element of the deal. The regulator believes many consumers agreed to deals thinking they were receiving a flat rate from the finance provider and would have attempted to negotiate or considered alternative options if they were aware of what was included in the rate.

Up to 40% of finance deals affected

The regulator estimates that 95% of all car finance deals had a commission model and that 40% of those sold before the DCA ban will have included some element of interest inflation.

Given that 90% of new cars in the UK – and a significant portion of the used car market – are purchased using financing, the FCA’s verdict on DCAs and car finance mis-selling, expected to be delivered at the end of September 2024, could open the floodgates to complaints and compensation on a similar scale to the PPI scandal.

At present, the FCA is investigating the non-disclosure of commissions before the DCA ban, with the potential for car finance packages sold dating back to April 6^th 2007, when the Financial Ombudsman Service took over jurisdiction of motor finance complaints, to be included. However, there are also concerns that wrongdoing continued after the DCA ban, which the FCA will likely clarify alongside the dates for inclusion when it delivers its verdict.

Since non-disclosure is already accepted as the basis for Plevin and Business Energy Claims, the expected confirmation of significant car finance mis-selling will deliver a considerable opportunity for claimant firms.

‍