Martin Lewis on Black Horse Finance Claims: What you Need to Know

Martin Lewis advocates for consumer rights and protection as the Financial Conduct Authority (FCA) continues its investigation on the car finance claims commission. Black Horse, one of the biggest financial firms in the UK, is implicated in the ongoing discretionary commission arrangement (DCA) scandal. To provide consumers with clear direction, particularly on the processes and eligibility requirements for their complaints, Martin Lewis offered practical tips to help them succeed in their car finance claim against Black Horse.

The Nature of the Discretionary Commission

Discretionary commission arrangement (DCA) was widely practiced by car dealers from 2007 until the Financial Conduct Authority (FCA) banned it in 2021. Under this commission structure, car dealerships and brokers could inflate interest rates on car finance agreements, helping them earn higher commissions at the expense of the consumers. The consumers, on the other hand, were often unaware that the interest rate in their car finance agreement was marked up for the benefit of the dealer, not the lender. Since it was banned in 2021, many consumers who entered into car finance agreements before the ban are now entitled to compensation.

The investigation of the FCA aims to identify whether motor finance companies have been unfairly rejecting claims from consumers who believed that they were overcharged because of DCA practices. According to reports, 40% of car finance deals in the UK were affected by the dealers’ practice of DCA commission structure.

In response to this investigation, Black Horse asserted that they are committed to following the FCA’s 2021 ban on DCA. Their spokesperson emphasized that-

“The lender has fully implemented the 2021 rules and has been prioritizing adherence to the standards.” Despite the ongoing concerns surrounding discretionary commission arrangements, Black Horse maintains its compliance with the latest regulatory standards.”

Previous Cases of Black Horse Finance

1. Unaffordable finance agreement

Mr. B complained that Black Horse Limited (operating as Land Rover Financial Services) irresponsibly approved a car finance agreement for him in October 2016. The car, priced at £78,500, had a total finance cost of £92,889 (including interest and fees). Mr. B contributed a deposit of £6,500, and the agreement included 47 monthly installments of £1,113, with a final optional payment of £34,091 to purchase the car. Mr. B argued that the lender failed to conduct adequate affordability checks, considering his fluctuating income and pre-existing debts. He also claimed that the nature of the agreement was misrepresented to him as a standard hire-purchase.

The ombudsman directed Black Horse to:

• End the agreement without requiring further payments from Mr. B.
• Recover the car at no additional expense to Mr. B.
• Remove all records of the agreement from Mr. B’s credit file.

The ombudsman did not find it fair to refund Mr. B’s deposit, as he had used the car extensively during the agreement period (driving approximately 80,000 miles over four and a half years). The decision balanced fairness by acknowledging Black Horse's shortcomings and Mr. B's car usage.

2. Compensation for inconvenience

Mr. B acquired a car through a hire purchase agreement with Black Horse Limited in October 2022. On the same day, he reported the engine management light being on due to a fault with the catalytic converter. The dealer refused to repair the car, citing the high repair costs. Mr. B subsequently experienced delays in the car’s collection, causing him inconvenience, lost wages, and additional costs for tax and insurance.

The ombudsman concluded:

• No Additional Compensation: The £150 offered by Black Horse for inconvenience was deemed reasonable, considering the overall resolution, including the full refund of payments and deposit.
• Dealer’s Responsibility: The dealer was responsible for handling certain costs (e.g., tax and insurance refunds). Mr. B was advised to contact the dealer for these matters.
• Non-Financial Considerations: While acknowledging Mr. B’s frustration and inconvenience, the ombudsman emphasized that loss of wages and similar costs fall outside the scope of compensation.
  

3. Undisclosed dealer commission

Mrs. Y entered into a hire-purchase agreement with Black Horse Limited to purchase a car in April 2016. The complaint arose from Black Horse paying the credit broker (the "Broker") a commission, which Mrs. Y claimed was undisclosed to her. The commission amount was linked to the interest rate on the agreement, and the Broker had the discretion to set this rate. This setup incentivized the Broker to choose a higher interest rate, which increased the commission it received.

The Ombudsman ruled in favor of Mrs. Y and determined that:

• Black Horse's discretionary commission arrangement created a conflict of interest, as the Broker had an incentive to set a higher interest rate.
• This arrangement breached FCA principles, particularly those requiring firms to treat customers fairly and manage conflicts of interest.
• Black Horse failed to disclose the commission structure adequately, making the relationship unfair under the Consumer Credit Act 1974.

The ombudsman ordered Black Horse to:

• Reimburse Mrs. Y for the excess payments she made under the agreement, calculated as the difference between the payments made at 5.5% and those she would have made at the lowest rate (2.49%).
• Pay interest on these overpayments at 8% simple per year from the payment date to the settlement date.

Martin Lewis' Insights on FCA Investigation

Martin Lewis, the founder of MoneySavingExpert, has been a vocal advocate of promoting consumer rights and protection. He urges consumers who believe they were charged unjustly with commissions in their car finance agreement to file complaints with their finance provider. 

According to Lewis, car finance commission payout could be as big as the Payment Protection Insurance (PPI) scandal, with consumers potentially receiving compensation for overpaid interest, undisclosed commission added to the agreement, or even the entire loan amount.

Lewis strongly advises consumers to act swiftly. He says filing a complaint early ensures that individuals are eligible for any redress scheme that may be implemented as a result of the FCA’s findings. He further clarifies that while complaints might be paused temporarily, it is still important to document them now to avoid missing any potential deadlines for claims.

As financial firms anticipate the rulings of the FCA, Lloyds Banking Group, which owns Black Horse, has set aside £450 million to cover potential costs related to the FCA’s probe into past commission practices. CFO William Chalmers remarked, “The financial impact could differ materially from the reserve amount.” Given Lloyds' significant role in motor lending, it is expected to bear the heaviest burden, with analysts predicting the bank could face up to £2 billion in compensation. RBC experts noted, “Lloyds is expected to carry the heaviest burden, leading to a 14% drop in share price since January and a 110 basis-point decline in financial resilience.”

Who is eligible for a car finance claim?

To be eligible for compensation under the FCA investigation, consumers need to meet the following criteria:

• Agreement Date: Consumers must have taken out a car finance agreement before January 28, 2021.
• Finance Type: Their agreement must be a Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement.
• Discretionary Commission: Their agreement must have been subject to discretionary commission arrangements between the finance provider and the car dealer.

If consumers meet these criteria, it is crucial to file a complaint now, even though the investigation timeline may stretch into 2025. Lewis recommends submitting a complaint as soon as possible to establish a record.

However, consumers need to remember that they may receive unfavourable responses from their car finance service provider.

To take into account, Lloyds TSB, now part of Lloyds Banking Group, was noted for mishandling customer complaints, with 86% of initial rejections being overturned by the Financial Ombudsman Service (FOS). As highlighted in industry reports, “This raised concerns about systemic issues in how the bank assessed and addressed customer grievances.” Given the bank's past difficulties in handling complaints, it is essential for consumers to ensure their complaints are properly filed, documented, and escalated if necessary.

What is not covered by the investigation?

The FCA’s investigation will not cover:

• Car finance agreements made after January 28, 2021.
• Leasing agreements (Personal Contract Hire).
• Claims based on affordability concerns rather than commission issues.
  

How much is the potential compensation?

As for compensation, the amount is still unknown. Lewis suggests that affected consumers could be entitled to thousands of pounds in redress. The FCA is currently determining how the compensation will be calculated, but it is likely that consumers will receive refunds based on the overpaid interest or the commissions added to the original loan amount.

Some consumers could even be entitled to the full refund of their loan amount, depending on the outcome of the investigation. While the full scale of potential payouts remains uncertain, it is clear that many consumers could benefit from the outcome of the FCA's investigation.

How to file for a claim?

If consumers believe they are eligible for a claim, the first step is to file a complaint with the finance provider. Even if their finance provider has gone out of business, they can still file a complaint with the administrator or liquidator.

Additionally, if their claim was already submitted and rejected, they might still have a chance to have it reconsidered based on the findings of the FCA investigation. 

Act Now

If consumers have a car finance agreement taken out before 2021, particularly if it involved a PCP or HP agreement, and they suspect that they were overcharged due to a discretionary commission arrangement, they may be entitled to compensation.

As Lewis said, “act now to ensure that you’re not excluded from future redress schemes.” The FCA's investigation, combined with the possibility of a court ruling that benefits consumers, provides a unique opportunity for reclaiming any overpaid fees.