Car finance payback time
Mis-sold car finance? Compensation could finally be on its way, says Paul Lewis
If you bought a car, motorbike or van using finance provided by the dealer between 6 April 2007 and 1 November 2024 you could be in line for compensation. The Financial Conduct Authority (FCA) has confirmed it will be introducing a nationwide scheme that will give £700 compensation, on average, to 14 million customers. If you took out more than one qualifying loan between those dates you will get a payment for each.
People qualify for compensation if the bank that organised the finance misled them, which could be because:
- it gave the dealer more commission the higher the interest rate the customer agreed to pay; or
- it paid the dealer excessive commission that amounted to at least a tenth of the total amount paid and 35% or more of the cost of credit; or
- the dealer promised to find the best loan when in fact it gave one lender preference.
The FCA estimates that nearly half of all vehicle loans made in that period break at least one of these conditions. You won’t know if yours did, because the whole essence of these practices is that they were kept secret! So if you bought a car on finance through the dealer between those dates, put in a mis-selling claim to the lender now. If you qualify, compensation will be paid next year. If you do not claim, the lender should find you, but that will take longer.
The amount you get will depend on the circumstances. The calculation the FCA uses to get to an average of £700 per contract is controversial. Many lawyers and consumer organisations believe it gives customers too little, though lenders are campaigning to pay even less. A final decision on the calculation is expected in the New Year.
Many law firms and claims management companies (CMCs) have been encouraging people to sign up with them to get compensation. If you are happy with the basic payment, you should not do so. If you already have, then consider exiting (but there will be a fee). If you want to hold out for more than the basic amount, go with a law firm (but not a CMC), but remember, they will take at least a third of what you finally get.