Estimates as to just how costly vary: Citi predicts up to £9bn of possible charges for banks. HSBC analysts say the issue could cost as much as £16bn.
Last week merchant bank Close Brothers, which offered loans to car buyers across 4,000 dealerships, axed a £100m dividend over fears about the scale of the FCA investigation.
“The banks are in this holding pattern because it’s yet to be determined whether there is systemic harm with the discretionary commission models,” said Kate Robinson at Avyse Partners, which advises lenders on regulatory issues.
Like many drivers, Mrs Young had bought her car using a loan from Black Horse, which controls 20pc of the car finance market. It had been arranged at her car dealership by the salesman, who was also a regulated loan broker.
Unbeknown to her, the salesman stood to earn a secret commission if Mrs Young agreed to a higher interest rate on her loan. She had already been turned down for four other loans, making her more vulnerable to accepting the deal.
Mrs Young ended up paying hundreds of pounds more than she otherwise would have done, according to the Financial Ombudsman Service (FOS),
Her compensation case, brought by law firm Bott and Co, was upheld last month because she wasn’t told about the arrangement. She was awarded £630.
While her award is comparatively small, the scale of the car finance industry means the issue could prove hugely costly if mis-selling is uncovered on a market-wide scale.
