It’s the scandal dubbed ‘PPI on Wheels’, but last week five judges at the Supreme Court dealt a blow to millions of drivers hoping for a payout on their car finance deals.
There will be no compensation for customers who were simply unaware commission was being paid when they took out car finance, with the judges declaring this was not enough to count as mis-selling.
But they did say motorists could still qualify if they meet certain conditions.
Car buyers who took out deals between 2007 and 2021 could potentially claim, if the deal was deemed ‘unfair’.
Following the ruling, the Financial Conduct Authority (FCA) said it would consult on a scheme where compensation could be paid to victims next year.
Verdict: Last week the Supreme Court dealt a blow to millions of drivers hoping for a payout on their car finance deals
What is the finance scandal about?
It focuses on ‘secret’ commission paid by lenders to dealerships which promoted loans, often when selling vehicles as part of a personal contract purchase (PCP) or hire purchase (HP), agreement between 2007 and 2021.
Two million cars are purchased using finance deals every year and as many as 6.6million people unwittingly signed up to a discretionary commission arrangement (DCA) – where they paid more in loan interest than they should have done, in a ruse which bumped up the commission salesmen could earn.
The FCA calculates a buyer could have paid £950 more than necessary due to these commission payments.
The car finance industry could still be forced to pay out as much as £18billion to compensate customers who were unfairly sold finance deals.
However, the Supreme Court rejected a need to pay compensation for motorists simply being unaware commission was paid. This could have more than doubled the industry bill to £44billion.
This potentially huge payout led to car finance being dubbed PPI on Wheels after the £50billion Payment Protection Insurance (PPI) scandal of the late 1990s and early 2000s, where customers were mis-sold insurance cover as an add-on to loans, credit cards and mortgages.
Who will get a payout?
Buyers who the judges believe were treated ‘unfairly’ when they took out a DCA should get payouts.
This is where the interest rate offered to a customer could vary depending on the level of commission the lender would pay the car dealer.
You will not automatically get a payout just because you had a DCA and the criteria has yet to be decided by the FCA.
But if the amount is deemed not to be ‘fair and proportionate’ and involves paying ‘high commission’ you should receive compensation.
Who won’t get a payout?
Those who took out finance that did not involve a DCA are not expected to receive any money.
Even if you did take out a DCA and were totally unaware that any commission was paid, you may still receive nothing if the amount is deemed by the regulator to be fair.
The FCA has yet to decide how this will be measured and the amounts that will be paid.
Unfair: The interest rate customers were offered could vary depending on the level of commission the lender would pay the car dealer
How do I know if I have a DCA?
The devil is in the detail of the contract, and it may be written in a way that makes it unclear.
This is a key reason why the crisis arose – because buyers were not even aware commission was being paid.
Contact both the lender and the dealership and ask them directly. The FCA says: ‘They are obliged to tell you.’
As soon as you realise it was a DCA, put in a formal complaint. They must confirm receipt of this within eight weeks. But any potential payouts are on hold until an FCA decision next year.
It is not only motorists who took out a PCP who may be due compensation but also those who took out a HP agreement.
It is the fact that the agreement involved a DCA which is important and that it was taken out between 2007 and 2021.
Should I sign up for a claims firm?
No. The FCA has been probing DCA agreements since January 2024.
In March, the watchdog said if after the Supreme Court ruling it thinks there was widespread harm to consumers from commission payments, then it could set up an industry-wide redress scheme.
This means drivers won’t have to go to court or use a law firm or claims management company to get the compensation they are owed.
If I have signed up, what should I do?
You cannot simply pull out. Read the small print of any contract you signed with a claims company as it may still be owed money if you receive a payout.
However, if they want to take a particularly large chunk of any compensation – such as half – then it might be easier to break any contract. The FCA says: ‘Exit fees must be fair and reasonable.’
Deals: Two million cars are purchased using finance deals every year and as many as 6.6m people unwittingly signed up…
Read More: How to work out if YOU can claim £950 from the car finance scandal – and what to