UK Car Loan Claims to Include DCAs and Fixed Commissions

FCA Update: Fixed Commissions Now Eligible for Car Loan Claims, Expanding Previous Scope

two women shaking hands after car dealership

The Financial Conduct Authority (FCA) is considering a proposal to extend the timeline for motor dealers to address complaints about discretionary commission agreements (DCAs) in light of a significant Court of Appeal verdict. The FCA expects to release an update by mid-December 2024. This came after the Court of Appeal released its verdict regarding three landmark cases on mis-sold car finance in October, which made it clear that customers might now sue for undisclosed commissions in motor loans. The FCA’s probe could also broaden the types of claims eligible for payouts, which might cover discretionary and non-discretionary commissions.

Experts say that the decision may significantly expand the number of people who can receive car finance compensation, potentially doubling the number of impacted consumers. 

Expanded timeline, coverage in effect until Supreme Court ruling

The FCA is looking at consultations that could lengthen the period allotted for auto finance providers to respond to commission claims. This extension proposal came after the Court of Appeal decided that it is illegal for brokers to accept commissions from lenders while failing to inform clients. The FCA has proposed an extension that will give businesses enough time to properly handle the anticipated surge in claims. 

The proposal, which studies the potential length of the extension, will be implemented until the Supreme Court releases its decision on the Wrench vs FirstRand Bank Ltd., Johnson vs Firstrand Bank Ltf., and Hopcraft vs Close Brothers. 

In addition to ensuring that claims are processed in an orderly and effective manner, this move attempts to prevent disorganised processing. To ensure that complaints are addressed in time, the FCA urged consumers to file their complaints as soon as possible, especially with the anticipated increase in the number of complainants given the Appeal Court ruling.

Aside from giving motor firms time to process claims, the extension also widens what types of commission agreements consumers can claim for. Contracts with fixed commissions are now eligible for compensation, in addition to DCAs

While the decision significantly impacts the motor sector, companies have been cooperating with the watchdog to guarantee the equitable and uniform processing of the expected surge in claims. The regulator has already spoken to 63 firms and organised an industry roundtable to assess the impact. As the industry adjusts to the legislative change, the agency aims to ease the transition for both auto companies and consumers. 

Money Saving Expert founder Martin Lewis noted that this action might impact a far wider range of consumers than anticipated, which would result in a spike in auto loan claims and the cost of covering them. With numerous lenders putting aside substantial amounts in anticipation of future payouts, the sector is also bracing for at least £16 billion in losses due to redresses. 

In the meantime, more confusion has been created by the FCA’s decision to temporarily halt all complaints while it awaits the Supreme Court’s final decision. This could mean longer processing time for claims but offers a chance for a more comprehensive analysis of the sector, its practices, and firms’ strategies to compensate customers. 

Legislative changes shed light to consumers’ plight

The Appeal Court’s ruling on October 25, 2024, represents a dramatic shift as it deemed brokers like auto dealerships cannot get commissions from lenders without securing consent from clients. This historic decision requires that consumers express explicit and informed agreement as an indicator that they fully understand all pertinent information applied to their contracts. Disclosed details must include calculations and amounts to be paid. While the watchdog has banned DCAs in 2021, this latest ruling covers all commission agreements in the motor sector. 

According to the Court of Appeals judgment in Johnson v FirstRand Bank Ltd - which handles MotoNovo Finance - complainant Marcus Johnson found out he was paying 25% on top of his original payments, to cover the broker’s commission. Johnson paid £1,650 in commissions alone, showing how much damage the agreement brought. Johnson and millions of other customers may now qualify for reimbursements. 

The ruling is already influencing how auto finance disputes are handled, as more customers are expected to become aware that they were misled about auto financing options. There are critical ramifications for both consumers and companies from the proposed expansion of the complaint-handling time as it not only extends the coverage in terms of commission type and period of filing, but also the time of the agreement.

Mis-sold auto finance victims prior to the 2021 DCA ban also have additional time to assess their contracts and decide whether they have been misled. 

Motor firms to tighten their terms, customers to face difficulties

While existing clients who received mis-selling contracts may be able to recover some of the funds they overpaid, future customers may be facing more difficulties when getting car financing. Lenders are anticipating more fees, which could negatively impact auto deals. 

MSE’s Lewis remarked that motor firms may become hesitant to provide competitive terms and “may risk being counterproductive to consumers” due to the “potentially existential threat to consumer lending.” The changing legislative landscape for the car lending market also puts pressure on its financial stability, even after some companies have made plans to mitigate the financial consequences. 

Some potential consequences include increased interest rates or more stringent lending standards. 

In the meantime, the FCA will write to the Supreme Court to ask whether lenders will have the opportunity to appeal the ruling. Future developments to related laws, including the FCA’s findings on DCAs, are expected to create a more equitable industry. 


Related Blogs
FCA Reminds Motor Finance Firms to Maintain Adequate Funds amidst Ongoing Review of Commission Practices

The FCA reminded UK motor finance firms on 12 April 2024 to maintain adequate financial resources. This follows its ongoing review of discretionary commission arrangements (DCA), aiming to protect consumers from potential financial harm.

Close Brothers Reveals £400-Million Plan Amid FCA Motor Finance Probe

Close Brothers Group plc plans to increase its capital by about £400 million by the end of the 2025 financial year. This strategy aims to prepare for potential impacts from the Financial Conduct Authority’s review of past motor finance agreements.

Reclaim247.co.uk is a trading style of Claimsline Group Ltd, registered in England and Wales, Company registration number 09071409. Registered Office: C/O Burton Varley Ltd, Suite 3, 2nd Floor, Didsbury House, 748 - 754 Wilmslow Road, Manchester, United Kingdom, M20 2DW. VAT registration number 199616255. Registered with the Information Commissioner's Office; registration number ZA059156.

Where the service is offered at No win no Fee this means that a customer will typically pay 30% + VAT 36% including VAT of any amount recovered by a panel solicitor although this will be subject to your individual circumstances and the actual fee may be less than this, but it will never be more. A cancellation fee may be charged by a third party/panel solicitor if you cancel outside the cooling off period.

You do not need to use a claims management company to make a claim; you can do this yourself for free by contacting the car dealership or finance provider and if that is not successful you can complain to the Financial Ombudsman Service. We may receive a fee for introducing you to a third party/panel solicitor, this does not affect any compensation you may receive.

You can find our terms of use, privacy policy and our cookie policy here. Claimsline Group Ltd is a claims management company. Any solicitor we recommend you to is an independent professional from whom you will receive impartial and confidential advice. You are free to choose another solicitor.

**Roughly 90 per cent of new cars and 50% of used cars (https://www.autotrader.co.uk/content/news/mis-sold-car-finance-claims) You can find our terms of use, privacy policy and our cookie policy here.

***Average compensation of £1,600 source Bott & co (https://www.bottonline.co.uk/mis-sold-car-finance-claims) Representing thousands of clients, they have successfully won over 90% of mis-sold car finance claims that have gone to trial since January 2022, with the average pay out over £1,600 in compensation.

Claimsline Group Ltd is authorised and regulated by the Financial Conduct Authority (FRN:831196). Claimsline Group is a claims management company and only undertakes marketing activities which comply with Solicitors Regulation Authority Code of Conduct 2011 (in particular, Chapter 8 - Publicity). Regulatory information.