Car loan scandal victims told to file complaints
MPs heard the car finance sales incident was a “complete disaster” and customers could complain to their lenders if they were aggrieved.
Lenders and dealers are accused of concealing commission payments on vehicles purchased under financing agreements.
The situation is complex and will take a long time to resolve, bosses of the financial regulator told the House of Commons Treasury Committee.
The Financial Conduct Authority (FCA) has said dissatisfied car buyers should complain if they think their credit has been mis-sold. Thousands of drivers have already done this.
The vast majority of new cars and many second-hand cars are purchased with financing agreements.
Approximately two million vehicles are sold this way every year. Customers first make a down payment, then pay a monthly fee for the vehicle along with interest.
Advice for drivers
The FCA is considering whether car buyers should be compensated where car dealers receive commission from lenders based on the interest rate charged to the customer. These regulations are banned in 2021.
A recent Court of Appeals decision expanded the story to other types of “hidden” commission payments and raised the possibility of millions of drivers receiving payments. Banks have set aside hundreds of millions of pounds as a result.
Dame Meg Hillier described the situation as a “total disaster” because dealers and lenders may not have been transparent with their customers.
He asked what advice he could give to those in this situation.
“If you are unhappy with the terms of your finance agreement you should contact your lender and complain to your lender if you have concerns,” said Nikhil Rathi, chief executive of the FCA.
It is likely that hundreds of thousands of complaints have already been made and could result in the largest compensation scheme for financial products in the wake of the payment protection insurance (PPI) scandal.
Lawyers for the car buyers say the cases should proceed according to the Court of Appeal decision, but Mr. Rathi was more cautious.
He said the courts had interpreted the law differently regarding fixed commissions, while the FCA had previously investigated discretionary commission arrangements.
The lenders involved in the case asked the Supreme Court to consider the case. Meanwhile, sellers and lenders have been given a longer period to deal with complaints.
MPs heard they are getting a clearer idea of whether a “structured compensation system” could come next year that would require customers to lodge complaints or see companies review cases and automatically pay compensation.
Mr Rathi said the regulator was considering whether the Court of Appeal decision would have implications for other sectors.
While no information was given about which sectors it would be in, analysts suggested that other “big budget” acquisitions made in the financial sector could also be scrutinized.
The committee of MPs also questioned the FCA in a wide-ranging hearing about the investment risks facing consumers, financial influencers and the regulator’s operational effectiveness.