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A saga over the sale of car finance is “an unholy mess” and customers can complain to their lender if they are wronged, MPs have heard.
Lenders and dealers have been accused of hiding commission payments made when purchasing cars in financial transactions.
Facing the Commons Treasury Committee, bosses at the financial regulator were told the situation was a mess that would take a long time to resolve.
Dissatisfied car buyers should complain if they feel their loan has been mis-sold, the Financial Conduct Authority (FCA) has said. Thousands of drivers have already done it.
The vast majority of new cars, and many used cars, are purchased under finance deals.
Around two million are sold this way each year, with customers paying an initial deposit and then a monthly fee with interest for the vehicle.
Advice for drivers
The FCA has questioned whether car buyers should be compensated in cases where car dealers received a commission from lenders, based on the interest rate charged to the customer. These provisions were banned in 2021.
A recent Court of Appeal ruling widened the saga to other types of “hidden” commission payments and raised the possibility of millions of motorists receiving compensation. Banks have thus set aside hundreds of millions of pounds sterling.
Dame Meg Hillier described the situation as “an unholy mess” because dealers and lenders may not have been transparent with their customers.
She asked what advice there was to give to anyone involved in this matter.
“If you are unhappy with the terms of your finance agreement, you should contact your lender and make a complaint to your lender if you are concerned,” said Nikhil Rathi, chief executive of the FCA.
Hundreds of thousands of complaints have likely already been filed, which could result in the largest financial product compensation package since the Payment Protection Insurance (PPI) saga.
Lawyers for the car buyers say the cases should be based on the Court of Appeal's ruling, but Mr. Rathi was more circumspect.
He said the courts had given different interpretations of the law regarding fixed commissions, while the FCA had already considered the arrangements for discretionary commissions.
Lenders involved in the case have asked the Supreme Court to review the matter. In the meantime, dealers and lenders have a longer period of time to address complaints.
A clearer idea of whether a “structured redress system” which would force customers to complain, or ensure businesses can revisit their cases and automatically pay compensation, would be presented next year, MPs heard.
Significantly, Mr Rathi said the regulator was also investigating whether the Court of Appeal's ruling could have implications for other sectors.
It did not specify which sectors, but analysts suggested other “significant” purchases in the financial sector could come under scrutiny.
In a wide-ranging hearing, the committee of MPs also questioned the FCA on the investment risks faced by consumers, financial influencers and the operational effectiveness of the regulator.
