The U.K.’s leading consumer affairs expert, Martin Lewis, has presented a one-hour special of his prime-time TV show ‘The Martin Lewis Money Show’ to outline how car owners who purchased vehicles on finance could be due compensation.
The issue was flagged last month as a potential area of investigation by the U.K.’s financial regulator, the Financial Conduct Authority (FCA). Most compensation claims were disputed and not paid out over now-banned ‘discretionary commission arrangements,’ meaning consumers were not necessarily being treated fairly.
In September, the FCA identified evidence that GAP Insurance products “may be failing to provide fair value to consumers.” The issue is that the product offers little of value to consumers but allows car dealers and marketplaces to earn potentially high levels of commission.
The regulator would use its powers under Section 166 of the Financial Services and Markets Act 2000 to identify cases of potential wrongdoing by motor finance companies. The FCA’s investigation is due to run until September 25.
What did Martin Lewis say?
Martin Lewis said on his show that in his view the regulator would only have launched the investigation “if it had substantial evidence and the likelihood is the investigation now is to make sure it’s got everything right so it can’t be judicial reviewed.” Lewis added “I think it is very, very likely it is going to rule that there was seismic, systemic mis-selling.’
This could mean it becomes the second biggest reclaim event ever in the U.K. following the payment protection insurance (PPI) scandal which eventually led to providers repaying more than £38 billion to affected U.K. consumers between 2011 and 2019.
In his weekly money saving tips email that went out on Tuesday night to the roughly 9 million who sign up to receive it, the leading story had a link to a new car finance free reclaim tool guide to show consumers how they can make a claim.
It said if you bought “a car, van or motorbike on finance before 28 Jan 2021, you could be due £1,000’s back.” It went on to say the FCA’s investigation “could lead to billions of pounds of overcharged interest paid back to millions of people.”
It is estimated that around 40% of vehicle finance sales made before January 2021 were sold using discretionary arrangements. This effectively meant dealers could manipulate interest rate charges, potentially to boost profits, without consumers being aware.
How will car dealers be affected?
It is unclear at this stage but it seems likely the main impact will be on dealers’ financial partners who did the lending such as Barclays and Santander, not car dealers themselves, though Lewis said “way over 100 firms” could be affected, which could include some motor finance specialists.
Car Dealer Magazine reports that dealers expect the TV show and linked publicity to result in high numbers of new claims. However, crucially for car dealers, on the show Lewis advised consumers to make their complaints to the lender, which means banks and financial services providers, not car dealers directly.
Car Dealer Magazine spoke to automotive legal company Lawgistics, who have produced a guide for dealers on the issue and whose advisor, John McDougall, said his company’s position is “that the responsibility for these discretionary commission arrangements is the lender.
“Until the FCA provides an update in September we are all a little bit in the dark as to what the outcome will be. However, the lenders (Banks) will fight their corner on this as they do not want another PPI situation.”