Legal rights for individuals who may have been mis sold car finance agreements may be significantly improved after the Financial Ombudsman Service reached a decision on a test case.
The case, involving Bott and Co client, Mrs Young who agreed to a motor finance contract with Black Horse for a used car purchase. Black Horse approved a 4.8% APR finance, but unbeknownst to Mrs Young, a covert deal between the dealer and lender allowed the dealer to earn commission on any interest above 4.8%.
Exploiting Mrs Young’s vulnerability, having been refused finance by four lenders, the broker raised the rate to 10.5% APR, thereby earning an additional £1,146 commission. Consequently, Mrs Young paid excessively, with over half her monthly interest serving the dealer’s commission.
The Financial Ombudsman Service concluded that the commission payment constituted an unfair relationship between Mrs Young and Black Horse and that Black Horse had violated various FCA customer fairness rules.
The Ombudsman mandated Black Horse to reimburse the extra interest resulting from the 10.5% APR agreement and to pay 8% interest on each overcharged payment. Mrs Young will receive around £600, covering the extra interest for 14 months until the agreement’s early termination. Mrs Young accepted this ruling, requiring Black Horse to comply within 28 days.
This judgment in the case of Mrs Young Vs Black Horse is likely to influence future Financial Ombudsman Service decisions in similar cases of mis sold car finance.
We welcome this decision from the Financial Ombudsman Service. We hope that the FCA will conduct its investigation swiftly in order to ensure that consumers are finally compensated for their losses.
The FCA estimates that approximately three-quarters of finance agreements from 2007 to 2021 involved unlawful commission arrangements, potentially entitling millions to substantial compensation.
Consequently, the FCA has instituted a 37-week hiatus on complaints regarding discretionary commission arrangements. During this period, it will develop a fair, timely, and systematic approach to compensating affected consumers.
Bott and Co, in 2019, established a department specializing in mis-sold motor finance, advocating for consumers affected by these practices. The firm contended that these practices were illegal, unfair, and breached several FCA regulations, a stance the lenders strongly opposed.
Many complaints escalated to the Financial Ombudsman Service, which adjudicates and can award remedies. These cases were mostly deferred for three years, awaiting a pivotal test case’s outcome.
Speaking on the decision, Bott and Co’s Coby Benson said “We welcome this decision from the Financial Ombudsman Service, which finally provides much needed clarity and dispels the lenders’ longstanding arguments that no unfairness has occurred. We hope that the FCA will conduct its investigation swiftly in order to ensure that consumers are finally compensated for their losses. We would encourage anyone who has purchased a car on finance since 2007 to contact us for further advice.”
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.
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