Car Finance Mis-Selling Scandal: How to Determine if You’re Owed Thousands
A significant car finance mis-selling scandal has emerged, potentially leading to substantial refunds for motorists who have been overpaying for years without realising. Similar to the infamous PPI mis-selling debacle, this scandal centres around undisclosed “secret” commissions paid to dealers by lenders, resulting in finance agreements with higher interest rates than expected. The complete magnitude of this issue has only recently come to light, with a crucial UK Supreme Court judgement expected later in 2025 to determine lenders’ liability for repayments. Customers who entered into vehicle purchases through Personal Contract Purchase (PCP) or Hire Purchase (HP) agreements before 28th January 2021 could be entitled to refunds that could amount to thousands of pounds. My Claim Group (MCG) is currently supporting those affected by this scandal, aiming to help them recover their money. With estimates suggesting that up to 40% of HP and PCP deals between 2007 and 2021 may have involved such commissions, there is a substantial potential for compensation. MCG’s efforts have already resulted in significant claims, with an average estimated value of £4,000 per case across 1.2 million instances.
The origins of the scandal lie in the pre-2021 era when numerous car finance agreements were based on “discretionary commission arrangements.” Under these schemes, car dealers had the authority to set interest rates for finance deals they facilitated, with higher rates securing more substantial commissions for dealers. This structure created a clear conflict of interest as dealers had a financial incentive to push high-interest loans to consumers, irrespective of whether they were suitable or cost-effective. In many cases, these commission details were not fully disclosed to customers, leaving them unaware. As a result, many individuals ended up agreeing to more expensive loans than necessary, influenced by dealers looking to maximise their profits.
The Financial Conduct Authority (FCA) prohibited this practice in January 2021 to promote transparency and safeguard consumer interests. However, subsequent investigations revealed the existence of these questionable practices as early as 2007, prompting a comprehensive review of past lending activities. A significant development occurred in October 2024 when the Court of Appeal ruled that non-disclosure of commissions on car loans was unlawful, opening the door for mis-selling claims. This ruling set a precedent that undisclosed commission arrangements could be grounds for consumer compensation. The Financial Ombudsman Service saw a surge in complaints, with a record 18,658 new car finance cases reported in the final quarter of 2024.
The repercussions for lenders have been significant, with Lloyds Banking Group increasing its provision for potential compensation to £1.1 billion following the Court of Appeal’s decision. Analysts predict that Lloyds’ total liabilities could surpass £4 billion, while other major lenders like Santander UK, Close Brothers, and Barclays are also facing substantial potential compensation costs. Estimates suggest that the cumulative compensation bill for lenders could reach up to £30 billion, underlining the gravity of the situation.
Government intervention ensued in response to the scandal, with UK Chancellor Rachel Reeves seeking to intervene in the Supreme Court case to shield lenders from potential multi-billion-pound payouts. This intervention raised concerns about the broader economic impact and its repercussions on consumers’ access to car loans. Simultaneously, claims management firms such as My Claim Group are actively encouraging affected individuals to file complaints. The Supreme Court is presently deliberating on a crucial appeal by car loan providers, after previous judgements favouring consumers. The FCA has paused the complaints process until the court’s decision, expected later this year, which will be pivotal in determining lenders’ obligations.
If you suspect you may have been impacted by this scandal, visit the My Claim Group website for further details and initiate the simple process to ascertain if you are eligible for a refund. This scandal serves as a reminder of the importance of transparency in financial transactions and the need for consumer protection regulations to prevent such practices from recurring. As the legal proceedings progress, affected individuals are advised to stay informed and take appropriate steps to seek redress if necessary.