Reclaim car finance commission

Car finance FREE reclaim tool & guide
Are you due £1,000s back from the hidden discretionary commission scandal?

Have you financed a car, van, or motorbike through PCP or Hire Purchase (not leasing) before January 28, 2021? If so, you might be entitled to receive substantial refunds. The Financial Conduct Authority (FCA) is conducting a thorough investigation into undisclosed and unfair commissions on car finance, potentially resulting in billions of pounds in overpaid interest being returned to millions of consumers.

This comprehensive guide includes our exclusive tool for reclaiming car finance, which is available at no cost, eliminating the need for a claims management company. Despite the current suspension of firms handling complaints, it’s crucial to register your complaint promptly to avoid potential time limits.

Approximately 40% of car finance agreements involved undisclosed ‘discretionary commission arrangements’. These allowed brokers and car dealers to inflate interest rates to boost their own commissions, resulting in consumers unknowingly paying more than necessary.

Your first step is to determine if you were affected, and our tool is designed to assist you in this process.

In January 2021, the Financial Conduct Authority (FCA) took action by banning ‘discretionary commission arrangements’ (DCAs). These arrangements had allowed lenders to raise interest rates on car finance through brokers (including car dealers), resulting in higher commissions without providing additional services. This practice was deemed unfair because consumers were unaware of these increases and many assumed they were paying a fixed price without room for negotiation.

On January 11, 2024, the FCA initiated a comprehensive investigation into this matter. The public announcement of such a wide-reaching investigation suggests that the FCA already possesses substantial evidence. Currently, it is leveraging its enhanced investigatory powers to scrutinize each firm involved.

It is probable that, upon completion of the investigation (expected by September), the FCA will establish a large-scale compensation scheme. While there is a slight possibility of a different outcome, preparations should proceed under the assumption that such a scheme will be implemented. This guide adopts this approach and provides a straightforward process for lodging complaints, avoiding the more complex and often legally supported option of pursuing court proceedings.

• This initial version of our journalistic guide and tool marks its debut—your feedback is invaluable. Our efforts have involved extensive research and consultations with regulators, lawyers, and lenders. However, navigating this remains largely unexplored territory, and thus, the decision on the optimal approach rests with me. Nonetheless, the ultimate choice is yours, and it’s important to note that this does not constitute legal advice. Should you find any unanswered questions after reviewing the guide, we welcome your feedback.

ACT NOW if your car finance may’ve had a discretionary commission arrangement

The FCA has prolonged the timeframe during which motor finance companies can handle complaints related to discretionary commission arrangements (received after 17 November 2023) while it conducts an investigation. Essentially, this means that while the FCA urges firms to address these complaints, they are not obliged to reach decisions until the FCA publishes the results of its inquiry (currently slated for 25 September 2024, with a potential for extension). For further details, consult the FCA’s consumer guidance concerning discretionary commission arrangements.

Despite the temporary halt by the FCA, we believe it’s prudent to file a complaint now to mitigate potential exclusion in case a future deadline is enforced. Additionally, a documented complaint could prove valuable in any potential future legal proceedings.

There’s no need to use a claims management firm to complain – it’d take a cut of any money you’re due. Our free tool below should help.

You can’t be blacklisted for complaining

Back in 2005, during the early days of seeking refunds for bank charges, there were complaints that companies were penalizing those who raised concerns. However, the Financial Ombudsman swiftly put a stop to this unfair practice. Since then, regulations prevent companies from retaliating against customers who voice complaints or altering their services offered to them – so there’s no need for concern.

For added assurance, we consulted the FCA, which assured us: “We can confirm that individuals making claims will not face ‘blacklisting’ from any company, nor will their claims impact any assessments for product applications (even with associated firms).”

The ‘are you likely to be affected?’ checklist

The Financial Conduct Authority (FCA) has indicated that approximately 95% of car finance agreements utilized a commission-based structure, with 40% incorporating significant ‘discretionary commission arrangements’. If your agreement included such arrangements, and this detail was not adequately disclosed—which was frequently the case—it is anticipated that you may have grounds to seek a refund once the FCA completes its investigation and resumes processing complaints (expected by 25th September 2024, but subject to possible extension). It would be prudent to assess whether this situation potentially applies to your circumstances…

+ This is for those who bought a motor vehicle on finance. This includes cars, vans, camper vans and motorbikes.

+ The finance agreement needed to be arranged before 28 January 2021 (and likely after April 2007). This is anticipated to cover:

• Individuals with existing agreements,
• Those whose agreements concluded within the past six years,
• Possibly individuals raising concerns within three years of becoming aware of the issue, potentially including those with significantly older agreements now that this has become widely known.

This urgency underscores the importance of acting promptly – the sooner you register your complaint, the lower the risk of missing the deadline.

There is a strong chance that complaints regarding agreements made before 6 April 2007 may not be accepted, as this marks the transition when the Financial Ombudsman assumed responsibility for motor finance complaints. However, the precise regulations will likely be clarified as part of the FCA’s investigation outcomes

There’s a strong possibility you won’t be able to complain about agreements made before 6 April 2007, as this is when the Financial Ombudsman took over jurisdiction of motor finance complaints, though exact rules will likely be part of the results of the FCA’s investigation.

+ The vehicle had to be for primarily personal, not business, use. While commuting falls under personal use, using it extensively for business or paying for it through your business could disqualify it.

Certain vehicles financed through a business arrangement might still qualify, but only if they have been predominantly used for non-business purposes and financed through a regulated credit agreement for less than £25,000. It’s important to note that the £25,000 limit applies specifically to these business agreements; there is no limit for personal finance agreements.

+ You CAN reclaim on behalf of someone who has passed away. Though it’s likely the lender will want to see a copy of the will and the grant of probate to ensure any compensation due goes to the right person.

+ It DOES include Personal Contract Purchases (PCP). Personal Contract Purchase are where you make loan-like repayments with the option to pay a larger ‘balloon’ payment at the end if you want to own the car.

+ It DOES include hire purchase. Hire purchase is where you pay off the total value of the car in monthly instalments.

+ You CAN still claim if the car’s now paid off, so the agreement is over. You are still eligible to reclaim. In fact, even if the car was repossessed, that doesn’t change your right to claim.

+ You CAN claim even if you’ve already submitted a claim for diesel emissions. This is a separate issue, and complaints about hidden discretionary commission won’t impact any separate claim about diesel emissions.

– It DOESN’T include Personal Contract Hire. Personal Contract Hire is what people usually talk about as leasing a car. This isn’t included in the FCA investigation – if you had this type of finance agreement, this guide isn’t for you.

– It DOESN’T include interest-free finance. If you had a genuine 0% interest deal, then by definition there was no ‘discretionary commission arrangement’ between the lender and the broker, as these DCAs were all about increasing the interest.

If you had multiple eligible car finance deals, you may be due multiple payouts. Each case is individual. Our free tool allows you to make requests by car finance provider (so if you had two agreements with the same firm, you can do that together, but if they were with separate firms, you must do two).

– Static caravans aren’t included, but you might still have a complaint…

While the FCA’s investigation focuses solely on motor vehicles, those who financed static caravans can still inquire about the presence of discretionary commission arrangements (DCAs) in their agreements. Sara Williams from Debt Camel advises that although the DCA ban specifically targets the motor finance market and regulated credit agreements for motor vehicle acquisition, static caravans, lacking a motor, fall outside this scope.

Nonetheless, Williams suggests that purchasers of financed caravans can still question the existence of DCAs. If such arrangements are found or if lenders refuse to respond, individuals can escalate their concerns to the Financial Ombudsman Service. The underlying issue with these arrangements remains unfairness, which applies irrespective of whether a motor is involved.

Regarding complaint handling, the FCA’s temporary pause does not extend to complaints concerning caravans.

Your car finance may have been mis-sold in other ways

This guide is specifically about discretionary commission mis-selling. You may have also been mis-sold due to a lack of clarity over costs or the conditions of your contract, poor affordability checks, or because your vehicle was faulty or in an unsatisfactory condition.

These types of complaints aren’t affected by the FCA’s investigation – for those, head to the Car finance mis-selling – are you affected? guide.

This involves 100s of firms…

Various specialized and all-encompassing car finance companies participate, and the examples provided below illustrate the diversity within this sector. Generally, if you entered into a PCP or HP agreement for a vehicle prior to January 28, 2021, it would be prudent to verify any potential impact on your situation.

Firms that’ve “never had discretionary commission arrangements”…

Several companies have informed us that they have never employed Debt Collection Agencies (DCAs), thus they fall outside the scope of our investigation. While we cannot confirm this independently, it appears improbable that regulated companies would assert such a broad statement unless it were accurate. Should this assertion prove false, we will file a formal complaint with the FCA regarding misleading information.

Therefore, if your car finance was arranged through any of these companies, it is likely not worthwhile to pursue a claim. The current list includes…

Find who to complain to, even if you don’t have details

Your first step should be addressing your concerns directly with the lender who provided your car finance. They are the entity to which you made monthly payments, distinct from the broker or car dealer involved.

Review all your agreement documentation thoroughly and gather comprehensive details about your car finance arrangements. Keep these documents secure for future reference. Once prepared, utilize our dedicated car finance complaint tool below. Alternatively, some firms offer their own inquiry forms for your convenience.

• Don’t know the details? Take a look at your credit report (learn how to check it for free). If you’ve had any agreements in the last six years, they should be listed there. You might also find details on old bank statements if you have them available.

If you know the company’s name but lack the details of the finance agreement, give them a call and request the information. Keep in mind, companies are only required to retain finance agreement details for six years after the agreement ends.

Even if your agreement dates back further, it’s worth asking as different companies may have varying policies. If they can’t assist, it often hinges on whether you have the necessary paperwork, much like previous claims such as PPI and bank charge reclamations.

• My car finance provider is no longer trading. If you can’t recall the finance provider and lack any paperwork, consider filing a complaint with the dealership where you purchased the car. They can either handle the issue directly or forward it to the correct lender. Provide as many specifics as possible about the car’s purchase date, registration, along with your name, date of birth, and address at that time.

If the entity has ceased operations, you won’t be eligible to file a claim. If it’s under administration or undergoing liquidation proceedings, you can lodge a complaint with the administrator (listed on the FCA register). Should your complaint be upheld later, you might become a creditor of the finance provider, though reimbursement could be minimal, possibly just a fraction of what’s owed.

In such cases, it might be prudent to direct your complaint to the broker instead (the entity that arranged your car finance, often the car dealership). While it’s believed that avenues for resolution may exist, comprehensive details may only emerge following FCA disclosures.

If my car dealership or broker has become insolvent, the onus remains on the car finance provider to address and resolve any concerns raised.

• My car dealer or broker has gone bust. It makes no difference, the responsibility is with your car finance provider, and it should handle your complaint.

THE TOOL: Free car finance discretionary commission tool & template letters

You can skip using a claims management company, which typically takes a percentage of any compensation you receive. Instead, we’ve developed a tool to simplify the process for you. Just provide some details about your car finance, and the tool will generate an email drafted by us (vetted by lawyers and regulators). This approach serves a dual purpose effectively…

1. Ask whether your car finance included a discretionary commission arrangement…
2. … and if it did, lodge a time-stamped complaint

We are confident in the effectiveness of our 2for1 strategy and anticipate its success. We’ve received tacit approval from several major financial institutions, which is encouraging. The Financial Conduct Authority (FCA) has indicated that lenders should respond to information requests, though this approach is uncharted territory and remains untested. There is a risk that some companies may incorrectly categorize it as a complaint and temporarily halt proceedings without furnishing the necessary information.

Our wording is designed to mitigate this possibility. However, if such a situation arises, although frustrating, your complaint will still be officially logged, which is crucial. If you wish, you are welcome to use our template to split your communication into two letters. Send the complaint portion after your vehicle finance provider has responded with the details you requested regarding discretionary commission arrangements.

Naturally, there may be unforeseen drawbacks since this is a novel initiative, but we are optimistic that they will be minimal.

Please note: Some users have encountered difficulties entering dates. On a computer, you can input dates manually. On a mobile device, your phone’s date selector will appear. Tap the year (on Android) or month (on iPhone) to navigate directly, without needing to scroll month by month.

Complained using our tool? What to do now

1. Not had an ‘acknowledgement’ receipt?

By this we mean, not even a: “thank you we’ve got your email, and we’ll reply in due course.” This is obviously frustrating, as you won’t know for sure that your email has got to the firm. So before you do anything else:

• Check your sent box: Is the email definitely in your sent messages?
• Check your junk mail: Check the reply isn’t in your spam/blocked list.
• Check the address you sent it to: Especially if you didn’t use contact details automatically filled in by our tool.

Only if all those check out, remember you gave a month for your car finance provider to respond, so wait until that time before doing anything. But at that point, if you still haven’t heard anything at all you should follow up with the firm.

2. Had an acknowledgement but nothing else?

While you gave the car finance provider a month, many are taking longer. This is because they’ve been overwhelmed by the number of people making enquiries.

The important thing is that you’ve got your claim in and it’s acknowledged – it’s been time-stamped and if there is a time bar, you’ve minimised the risk of being timed out. Even the regulator’s own website indicates timing may be an issue, saying: “so, if you think you could be running out of time, you should consider complaining to your provider now”.

As nothing is then due to happen until September, you don’t need to push for much else now. You can give the firm a bit more time to respond to your enquiry as to whether you had a DCA.

How much will I be repaid if I was overcharged?

Despite the FCA’s prohibition on discretionary commission schemes in January 2021, the Financial Ombudsman Service has recorded over 8,000 complaints. This figure was tallied before the publication of our guide, which is expected to significantly increase complaint numbers.

In two notable cases involving discretionary commission, the Financial Ombudsman Service ruled in favor of consumers who were improperly sold car finance. The cases involved Black Horse (a division of Lloyds Banking Group) and Barclays Partner Finance. In both instances, the consumers received refunds equal to the difference between the interest rate they were charged and the lowest rate available at the time.

Here’s a simplified illustration to clarify the outcome for borrowers.

– A customer of Black Horse financed a car costing £7,619 with a loan covering 100% of the purchase price. Despite the availability of a cheaper interest rate of 2.49%, they opted for a loan with a 5.5% interest rate, resulting in interest payments totaling £2,096 over a five-year period. Following a complaint, the ombudsman instructed Black Horse to refund the £1,147 difference in commission paid, along with accrued interest.

The interest rates listed are flat rates, not APRs, a tactic often used by car dealerships to present lower rates. In reality, the actual charged rate could be as high as 10.5% APR.

According to the FCA’s data, car buyers paid an average of £1,100 more in interest on a typical £10,000 four-year car finance agreement when discretionary commission arrangements were in place. Therefore, the larger the financing amount, the higher the interest paid, potentially leading to eligibility for refunds.

The FCA has not yet provided specific guidelines on how reimbursements will be handled, leaving uncertainty about the potential amount to be refunded. It remains to be seen whether all interest will be reimbursed or only a percentage above a deemed fair amount. Consequently, pending further information, rulings from the ombudsman serve as the most reliable source of advice.

What’s likely to happen next?

The outcome of the FCA’s investigation, expected by 25th September 2024 (with potential extensions), remains uncertain.

If the FCA uncovers systemic issues in the application of discretionary commission arrangements in car finance agreements prior to 2021, it aims to ensure fair compensation for affected individuals through a structured and efficient process.

Ideally, affected consumers would receive compensation automatically if they had undisclosed discretionary commission arrangements in their car finance agreements. However, similar comprehensive actions have typically only been seen in smaller mis-selling cases where companies voluntarily agreed to settlements.

Based on previous compensation schemes, it is likely that the FCA will adopt a solution akin to the PPI redress model. This would involve clear guidelines on compensation and eligibility, likely requiring consumers to lodge a complaint within a specified timeframe. There is also hope for provisions to support vulnerable consumers who face challenges in filing complaints.

Crucially, mechanisms should be in place to appeal unjustly rejected claims to the Financial Ombudsman Service.

Stay updated on all developments related to car finance mis-selling by subscribing to the free ExEconomics weekly email newsletter.

Complaint already in progress?

The FCA’s intervention came on the back of a rising number of complaints (many driven by claims firms and guides like our existing car finance reclaiming guide). So these discretionary commission agreement complaints aren’t a new type of reclaim, but they have changed things.

If you’ve already submitted a commission-related claim to your car finance provider, what happens next depends on when you complained…

• If you complained on or after 17 November 2023, your complaint can be paused until the FCA finishes its investigation, currently scheduled to be 25 September 2024.
• If you complained on or before 16 November 2023, your provider is expected to respond as normal.

If you made your complaint through a claims-management company

Contact it about what it is doing with your complaint. The likelihood is your agreement with it means even if you now follow this up yourself, you will still owe it a cut of any successful reclaim.

If you made the complaint yourself

If you complained before the cut-off, the process should continue as normal.

Remember, if your complaint is rejected, you always have the option to approach the free Financial Ombudsman Service – this is crucial, as many cases that are turned down by firms are later upheld when taken to the Ombudsman. So, don’t be discouraged if the lender responds with legal jargon suggesting your case lacks merit – this is simply a procedural step.

Complaints to the ombudsman typically need to be made within six months of receiving a final response from your provider. However, the FCA has extended this to 15 months for cases where a final response was issued between 12 July 2023 and 20 November 2024 as part of its review, so there is still time for you to act.

Complaints that have already been escalated to the ombudsman or the courts, but are still pending decisions, will continue to be processed as usual.

If the ombudsman has already addressed your complaint, you cannot re-submit it based on the FCA’s findings, unless expressly permitted by the FCA. If not, you still have the option to pursue your case in court (though most people will need the assistance of a claims firm unless they are legally proficient). It’s advisable to choose a firm like Bott & Co, which has its own solicitors and has received positive feedback, especially regarding flight delay claims.

If your complaint has already been adjudicated in court, the outcome of the FCA’s review will not affect the court’s final decision.