Car finance update: Regulator says don't use claims firms as £1bn in compensation at risk
The Financial Conduct Authority (FCA) has urged consumers not to sign up with claims management companies (CMCs) or law firms just yet, saying it will ensure any future compensation process is simple enough for people to do themselves.
A car finance scandal is brewing as the UK awaits the result of an FCA review into Personal Contract Purchase (PCP) schemes which previously saw car dealers allowed to raise interest rates so they could take a higher commission.
Thousands of customers were unaware that this was happening and the practice was banned in 2021 when the FCA - the financial regulator - decided to stop incentivising brokers to increase the amount people were charged for loans.
The Court of Appeal has since said it was unlawful for commission to be paid without the borrowers' knowledge.
The UK is awaiting the results of both the FCA review and a related Supreme Court case which could pave the way for billions in compensation to be owed to car owners.
It has been dubbed the next PPI scandal.
While a compensation scheme has not yet been confirmed, the FCA is preparing car owners not to use third parties to access payouts, saying they could lose up to 30% of what they are owed.
A spokesperson said any redress scheme would be made "easy for consumers to understand and participate in" on their own.
The spokesperson added: "Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and having to pay up to 30% in fees out of any award they may receive."
£1bn at risk due to missing lender records
But there’s another twist because many records have been deleted, a legal expert has warned.
As much as £1 billion in potential payouts could be at risk – because lenders are only required to keep records for six years. Therefore many agreements taken out before 2017 may now be impossible to verify – making successful claims far less likely.
The Guardian reports that lawyers fear this could significantly limit who is eligible for redress, especially if no paper trail or documentation exists to prove the finance deal terms.
The Financial Conduct Authority (FCA) ordered firms to stop deleting car finance documents when it launched its initial investigation in January 2024, but many relating contracts that ended more than six years earlier may have already been lost.
Claims law firm Courmacs Legal told The Guardian 465,000 consumers on its books fall into this category, and they could lose out on £1.18bn.
Darren Smith, managing director of Courmacs, said: “There is a real risk that millions of people will lose out because the banks which ripped them off will never write to them."
If you took out a PCP or Hire Purchase (HP) deal before 2021, you don’t need to take action yet, but you may want to dig out any paperwork, loan details or emails you still have, in case you need to submit a claim later this year.
Look for car finance agreements, lender names, and payment terms.
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