The car finance scam was called a ‘filthy scum’

A story on car finance sales is “an unholy mess” and consumers can complain to their lender if they are worried, MPs have heard.

Lenders and dealers have been accused of hiding commission payments when cars were bought on finance deals.

Facing the Commons Treasury Committee, the financial regulator’s bosses were told the situation was a mess that would take a long time to sort out.

The Financial Conduct Authority (FCA) said disgruntled car buyers should complain if they feel they have been mis-sold their loan. Thousands of drivers have already done so.

The majority of new cars, and many second-hand vehicles, are purchased with finance contracts.

About 2 million are sold this way each year, with customers paying an initial deposit, then monthly fees with interest for the vehicle.

The FCA is considering whether car buyers should be compensated for cases where car dealers charge lenders a commission, based on the interest rate charged to the consumer. These arrangements were banned in 2021.

A recent appeals court ruling widens the story to other types of “hidden” commission payments and raises the prospect of millions of motorists receiving payouts. As a result, banks have set aside hundreds of millions of pounds.

Dame Meg Hillier described the situation as “an unholy mess” because dealers and lenders cannot be transparent to their customers.

He asked what advice he had for someone stuck.

“If you are unhappy with the terms of your finance agreement, you should contact your lender and, if you are concerned, complain to your lender,” FCA chief executive Nikhil Rathi said.

Hundreds of thousands of complaints have already been made, potentially ending up with the biggest compensation scheme involving financial products since the Payment Protection Insurance (PPI) saga.

Lawyers for the car buyers say the cases should proceed based on the Court of Appeal’s decision, but Mr. Rathi was more cautious.

He said the courts had interpreted the law differently in relation to fixed commissions, while the FCA was already looking at discretionary commission arrangements.

Creditors involved in the case have asked the Supreme Court to consider the case. Meanwhile, dealers and lenders have been given a longer period to deal with complaints.

MPs heard that a clear idea of ​​whether a “structured redress system” would require consumers to complain, or ensure firms go back through lawsuits and automatically pay compensation. Do it, next year will come.

Importantly, Mr. Rathi said the regulator is also considering whether the Court of Appeal’s decision could have ramifications for other sectors.

It won’t be drawn on which sectors, but analysts have suggested other “big-ticket” purchases on finance could come under the microscope.

In a wide-ranging hearing, the MPs’ committee also questioned the FCA about investment risks to consumers, financial influence and the regulator’s operational effectiveness.