MILLIONS of drivers are in line for average payouts of £700 over mis-sold car finance, but loopholes could see many lose out on the full amount.
The Financial Conduct Authority (FCA) is cracking down on lenders who failed to disclose commission payments to car dealers, costing consumers billions.
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Yesterday, the FCA announced a consultation on a compensation scheme for the entire industry, with approximately £8.2billion set aside for refunds.
On average, affected customers could receive £700 per agreement.
Drivers who took out Personal Contract Purchase (PCP) or hire purchase agreements between 2007 and 2024 may qualify for compensation.
This applies if brokers hiked interest rates to earn higher commissions, lenders hid commissions exceeding 35% of the loan’s cost, or exclusive broker agreements limited credit options without informing customers.
However, how you choose to claim compensation could affect how much you receive.
The FCA has made it clear that drivers can submit claims directly to their lender without needing claims management firms or lawyers.
Despite this, six law firms are already representing 3.7million claimants with a total of 7.7million claims, according to consumer rights group Consumer Voice.
Drivers who have already filed a claim through a claims management firm or lawyer will automatically be included in the FCA’s scheme – but they will lose a slice of the cash in fees.
They can cancel their claim and log their own one – but they will have to pay firms an administration fee if they did it more than 14 days ago.
Meanwhile, those with complaints handled by the Financial Ombudsman Service must continue their claim through that route rather than the new FCA scheme.
How much compensation could I lose out on?
Most claims management and legal firms, including Courmacs Legal, Bott and Co, and My Claim Group, charge a fixed 36% fee on payouts between £1 and £1,499.
This means that if you’re entitled to the average £700 compensation, you’d only receive £448 after paying £252 in fees.
Some firms, like Consumer Rights Solicitors and missold-finance.co.uk, charge even higher fees – up to 48%.
In this case, you’d only get £336, as £364 would be taken in fees.
If you’ve had your claim with one of these firms for more than 14 days and want to cancel, you’ll need to pay an exit fee.
At Courmacs Legal, who is handling four million claims, this fee is £180.
In this case, cancelling and claiming directly through your lender would leave you better off.
By paying the £180 exit fee and filing the claim yourself, you’d receive £520 in compensation – £72 more than continuing with Courmacs Legal.
Some firms are less upfront about their exit fees, so it’s important to contact them directly to get clarity.
This will help you decide whether cancelling and claiming directly through your lender for free is the better option for you.
The FCA is taking action against firms that are not transparent about their exit fee policies.
Two unnamed claims management firms have already agreed to revise their exit fee policies.
And two other firms have agreed to stop accepting new clients and halt advertising until they can prove to the FCA that they comply with its rules.
Again, these firms have not been publicly named.
Your cancellation rights
IF you want to leave a claims management firm or law firm, check your contract first.
They may charge a cancellation fee, but it must be fair, reasonable, and clearly stated upfront.
They can only bill for work they’ve done and agreed with you.
If the fee seems unclear or unfair, ask for a breakdown.
If you’re unhappy, complain to the firm first – they must respond within eight weeks.
Still not satisfied?
For claims firms, contact the Claims Management Ombudsman on 0800 023 4567.
For law firms, escalate your complaint to the Legal Ombudsman.
Both services are free and can help you get compensation if treated unfairly.
What if my complaint is with the Financial Ombudsman Service?
There’s another issue that affects compensation for anyone who already has a complaint with the Financial Ombudsman Service (FOS).
The FCA has said thast over 80,000 customers have taken their complaints to the FOS.
However, these drivers won’t be able to switch to the new, faster FCA scheme and will need to continue their claim through the slower FOS process.
However, this doesn’t mean they’ll lose out.
Customers will still entitled to similar amounts of compensation and won’t have to pay any fees.
What about claiming directly?
The FCA has revealed that lenders already have around four million complaints on record.
To avoid unnecessary fees and delays, and to ensure you receive the full compensation, drivers can use a free template letter available on the regulator’s website.
If you’ve already submitted a complaint, lenders are required to contact you within three months before the scheme starts.
You will automatically be included in the scheme unless you choose to opt out.
However, if you opt out, you won’t be able to rejoin later.
When the compensation scheme launches in 2026, lenders will review all complaints that have already been submitted.
If you don’t file a complaint before the scheme begins, lenders will contact you within six months of its start.
However, the FCA recommends submitting your complaint now to speed up the process and receive your compensation sooner.
Who’s eligible for compensation?
OVER 14 million car finance agreements taken out between April 2007 and November 2024 qualify for compensation.
To be eligible, you must have taken out a Personal Contract Purchase (PCP) or hire purchase agreement during this period where the lender paid commission to the broker.
You will only get compensation if your lender didn’t tell you about one of three arrangements:
- A discretionary commission arrangement (DCA): This is where the broker (e.g., the car dealership) had the power to adjust the interest rate offered to the customer. A higher interest rate would result in a higher commission for the broker, which the customer ultimately paid for without being informed of this incentive.
- A high commission arrangement: The FCA has defined this as a situation where the commission paid to the broker was equal to or greater than 35% of the total cost of credit and also equal to or greater than 10% of the loan amount. The failure to disclose a commission of this magnitude is considered unfair.
- A contract tie: This refers to an agreement between the lender and the broker that gave the lender exclusivity or a right of first refusal, limiting the customer’s options for credit without their knowledge.
