Understanding Car Finance Mis-Selling: What You Need to Know

What is Car Finance Mis-Selling?

Car finance mis-selling occurs when a dealer or lender fails to act in your best interest when arranging vehicle finance. This can take several forms, but the most common involve hidden or discretionary commissions that increase the cost of your finance agreement without your knowledge.

How Did This Happen?

Between April 2007 and January 2021, many car dealers had arrangements with finance providers that allowed them to earn commission by increasing the interest rate on your finance agreement. This practice, known as Discretionary Commission Arrangements (DCAs), meant that dealers could earn more money by charging you a higher rate.

The Financial Conduct Authority (FCA) banned DCAs in January 2021 after finding widespread evidence that consumers were being overcharged. Research suggests that the average customer paid approximately 17% more in interest than they should have.

Who Is Affected?

You may have been affected if you took out car finance (PCP, HP, or a personal loan for a vehicle) between April 2007 and November 2024 through a car dealership. This includes agreements with major lenders such as Black Horse, Close Brothers, MotoNovo, and many others.

What Can You Do About It?

The first step is to check whether you had an eligible finance agreement. A soft credit check can identify any motor finance agreements linked to your name. This type of check does not affect your credit score.

If eligible agreements are found, you can make a claim for compensation. The process typically involves a regulated claims management company or solicitor contacting the lender on your behalf.

How Much Could You Claim?

Compensation amounts vary depending on factors such as the interest rate, the amount financed, and the duration of the agreement. On average, claims are estimated at around £700 per agreement, though some are significantly higher.

Important Dates

The FCA has set a deadline for complaints related to car finance mis-selling. It is important to act sooner rather than later to ensure your claim is processed within the relevant timeframes.