About The Car Finance Scandal

What Happened

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Over the last decade, there has been substantial growth in the vehicle finance market, with huge numbers of new car deals now using finance. The FCA (Financial Conduct Authority) wanted to make sure that consumers were getting the best deals, so they undertook an investigation into the market.

Unfortunately, what they found were serious concerns that could be causing harm to the consumer whilst benefiting the lenders and dealers financially.

In summary, the following issues were identified:

1. Some dealers and brokers push deals to receive more commission based on you paying more interest. The FCA found a clear relationship between higher commission rates and higher interest rates, with dealers and brokers allowed discretion to set interest rates by lenders. Some dealers and brokers pushed straight away for PCP with limited alternatives offered, simply assuming that the consumer wanted this whilst ignoring alternatives.
2. Information about deals and contracts not being sufficiently prominent or easy to understand. This could apply for both commissions and a lack of clarity about ownership of the vehicle, and what could happen at the end of the lease term.
3. Inadequate assessment about the affordability of the finance product, particularly for those with lower credit scores.

Not only are dealers and brokers under the spotlight here, but the lenders are as well. The FCA has been critical of lenders over too much reliance on assuming that dealers and brokers were following policies and procedures, with too little monitoring and reviews. It remains unclear as to why lenders even allow brokers and dealers to alter rates at their own discretion.

What this means is that millions of people in the UK could be refunded the interest they paid on their finance product, as well as receiving interest and repayment of charges and fees. You can claim your refund by pursuing a mis-sold car finance compensation claim now – and you can check your eligibility and use our calculator to find out more now.

The FCA Findings

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The key issues identified by the FCA were:

• Consumers paying significantly more for finance because of the way commission deals between dealers/brokers and lenders worked
• Dealers and brokers having a clear incentive to push more expensive finance deals with higher interest rates because it earned them more commission. The type of commission models this applied to are known as “Increasing Difference in Charges” and “Reducing Difference in Charges”. Reviews into other models, such as “Scaled Commission” and “Flat Fees”, had little or no relation to the interest rates charged, whereas the “DiC” models showed a clear link between increased commission with higher interest rates. The link between higher interest rates and higher commission rates exists when accounting for real factors that can affect interest rates, such as the amount borrowed or the consumer’s credit score
• In some cases, the difference in rates of commission between the “DiC” models and the “Scaled” or “Flat” models was an increase in commission of 185%
• Commission payments have not been made clear to the consumers during the pre-contract phase of selling the product, and sometimes during the actual agreements and contracts phase
• Some disclosures and explanations have been criticised as not complete, nor clear, and not clearly understandable
• A lack of care when considering the affordability of the financial product to the consumer
• A focus on the risk to the lenders as opposed to the benefit and suitability for the consumer

This can prevent you as the consumer being able to make a proper and informed choice to be able to get the best deal for you. If you have been harmed by this practice, you are rightfully entitled to claim a refund, and you can do this as part of a mis-sold PCP / HP compensation claim now.

Bans on the current way in which commission payments are being widely welcomed and encouraged, including by Martin Lewis - AKA Money Saving Expert.