The UK’s financial watchdog has announced an extension to its investigation into potential overcharging on car loans.
The Financial Conduct Authority (FCA) is allowing motor finance companies additional time to address customer complaints after it launched a review earlier this year into concerns around mis-sold car finance.
It is thought that thousands of motorists may have been overcharged for car loans through discretionary commission arrangements, which allow brokers to hike interest rates to earn higher commissions. The controversial selling practice was was banned in 2021.
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The FCA is now seeking evidence of widespread malpractice and considering whether to launch a formal redress scheme to compensate affected individuals in an “orderly and efficient way”. On Tuesday, July 30, the authority revealed it was examining thousands of records dating back 14 years.
However, due to delays in obtaining the necessary data, the FCA has announced it will not be able to provide an update on the review by the end of September as initially expected.
Motor finance firms could be given until December 2025 at the earliest to respond to complaints. Usually, there is an eight-week deadline to respond.
The FCA said the extension would give it enough time to potentially set up an alternative way of dealing with complaints relating to discretionary commission arrangements, such as consumer redress scheme. The FCA stated that this is “more likely than when we started our review”.
Lloyds, the owner of car finance firm Black Horse, announced earlier this year that it was setting aside approximately £450 million to cover potential costs related to the issue and any compensation payouts. Meanwhile, Barclays is currently seeking a judicial review of a ruling by the Financial Ombudsman Service that it treated customers unfairly over their car finance agreements.
The FCA said it was taking this into account with its own investigation as it will “consider legal issues highly relevant to our review”. The regulator is now expecting to set out the findings of its work in May next year.
According to Money Saving Expert, vehicle owners who bought their car, van or motorbike on PCP or Hire Purchase before January 28 in 2021 could be in line for thousands of pounds back. The consumer advice website is urging anyone who thinks they may have been affected to get a complaint in early.
