A decision from the Financial Ombudsman Service in relation to the mis-selling of car finance agreements is expected to be made over the coming weeks, with expectation that the landmark ruling could be made as soon as this month, or the early part of January 2024.
The decision is likely to set a long awaited legal precedent on how complaints can be managed for those who may believe they were mis-sold a financial agreement while purchasing a vehicle. Once the decision is made, clarity will finally be made on what legal rights consumers have, and how lenders should handle claims for compensation. Such an increased level of access to justice may open the floodgates for millions of consumers to claim compensation more easily.
We hope that motor finance lenders carefully consider the Financial Ombudsman Service’s imminent decision and finally start paying compensation to consumers who have been overcharged and unfairly treated over the years.
A Financial Conduct Authority investigation in 2018 laid bare the widespread practice of car finance agreements mis-selling. The investigation and subsequent report in early 2019 revealed that many consumers had been paying significantly more for their motor finance because of the way lenders chose to remunerate their brokers.
It was discovered that lenders systematically incentivised brokers and car dealers to charge their customers higher interest rates so they could receive higher commissions themselves. The FCA banned such activities from 28 January 2021.
Following the investigation, one car dealer openly admitted, “Frankly, we were getting away with murder. We weren’t treating customers fairly and were, in effect, charging them to earn us money.”
It was estimated that on a typical motor finance agreement of £10,000 over 4 years, the consumer was paying around £1,100 more in interest charges as a result.
As recognised consumer law experts, Bott and Co has been fighting for the rights of consumers affected by these unfair practices and successfully claiming compensation on their behalf. In 2022 Her Honour Judge Sykes agreed with Bott and Co decided in the appeal case of Beckett v BMW Financial Service (GB) Ltd that this sort of commission arrangement gave rise to unfair relationship under s.140A of the Consumer Credit Act 1974 and therefore awarded Mrs Paula Young compensation of over £1,500.
This court decision, and numerous since then, have not deterred lenders from fighting these compensation claims tooth and nail. Up until now the only way for consumers to claim compensation is by issuing court proceedings and arguing their case in court.
In addition, apart from instructing a solicitor and going to court, consumers could also use the Financial Ombudsman Service, however they have been investigating complaints for over 3 years and so far have not delivered a single Ombudsman decision.
Bott and Co’s Coby Benson, a solicitor representing clients in mis-sold car finance agreements said: “We know that people weren’t told that the credit broker would receive commission from the lender for arranging the finance and that the commission model used was unfair. This has been proven in court on several cases we have represented clients and in Beckett v BMW. We hope that motor finance lenders carefully consider the Financial Ombudsman Service’s imminent decision and finally start paying compensation to consumers who have been overcharged and unfairly treated over the years.”
It is hoped that the imminent decision finally provides a clear legal precedent on how these types of claims can be made. Once made, It is estimated that the total compensation bill could end up in the £billions.
If you think you may have been mis-sold car finance, just add a few details to our mis sold car finance claims checker for us to find your car finance agreements. We’ll then tell you if you can claim and how much you might receive.