City watchdogs have pushed back the date to decide on compensation related to Britain’s ‘biggest financial scandal” linked to vehicle purchases.
Millions of people were allegedly hit with unfair charges associated with commission imposed on finance deals around vehicle purchases.
Banks and other finance companies paid car retailers through so-called discretionary commission arrangements (DCA) on the sales of these finance deals that were not disclosed to customers.
The net effect was – potentially – to drive up the cost of these finance deals for millions of vehicle purchasers over a 14-year period.
The Financial Ombudsman Service has already ruled that these commissions were unfair and should be repaid in a test case involving finance supplied by Barclays. However, the bank is challenging the decision through a judicial review.
Money saving expert Martin Lewis has suggested this could the biggest financial scandal in British history with millions of people due compensation and refunds running to billions of pounds.
It is potentially even bigger than PPI – Payment Protection Insurance – where millions were mis-sold insurance around loans.
City watchdogs at the Financial Conduct Authority (FCA) initially put a pause on the redress process until September this year to allow it to review the situation. However, it has now decided to extend this review until December 2025.
The pause will anger car buyers who were misled and are out of pockets, however the FCA said the pause will allow it to confirm how many firms may need to introduce a redress scheme. It will also allow time to get the outcome of the Barclays legal action defending the commission arrangements.
In an update, the FCA said: “The pause allows us time, if necessary, to design, consult on and introduce an alternative way of dealing with DCA complaints, such as a consumer redress scheme.
“It is too early to say if we will intervene in this way, but based on our work so far, it is more likely than when we started our review.
“We consider allowing for this possibility preferable to the uncertainty and greater burden for firms created by a shorter pause that may be subsequently extended.
“If we decide not to introduce an alternative way of dealing with complaints, we’ll consult on ending the pause earlier. In this case, firms would start dealing with complaints again in the usual way.”
It added: ‘Motor finance is an important market, serving over two million consumers a year. In deciding next steps, we’ll consider how to make sure consumers are appropriately compensated and the market continues to work well, with effective competition.
“As with most types of consumer credit, motor finance is not protected by the Financial Services Compensation Scheme. If firms fail, consumers may not get back money they are owed.’
The FCA has already said that some companies are almost certainly guilty of commission failings and finance firms such as Close Brothers and Lloyds Banking Group have been putting aside hundreds of millions of pounds in case they have to compensate customers.
