How do I know if I was mis-sold car finance?

The recent investigation by the FCA into mis-sold car finance could see millions of consumers receive compensation. While the claims relate to car finance taken out before January 2021, mis-selling is more common than you might think.

If you’re worried you may have been mis-sold car finance, you’re not alone. In this blog, we'll guide you through how to tell if you've been a victim of mis-selling and if so, what actions you can take 👍😀

Understanding mis-sold car finance

Mis-sold car finance refers to situations where a lender has provided misleading or inaccurate information regarding a car loan.

This misinformation can lead you to make decisions based on false premises. Common examples of mis-selling include:

• You weren’t informed there would be a commission
• The car finance package isn’t suited to your circumstances
• You received bad or negligent advice about car loan alternatives
• The lender misled you about any additional costs involved
• You are charged more interest than you should have been

You have the right to file a complaint and potentially receive financial compensation if you have been mis-sold car finance.

What are the signs of mis-sold car finance?

If you want to check if you’ve been mis-sold car finance, here’s some common red flags:

Hidden Costs: Look over your finance contract and statements to check that any fees are fully transparent. Unanticipated fees could suggest mis-selling.

Discrepancies in Interest Rates: Verify if the interest rate applied matches what was initially quoted. Significant variances could point to false representation.

Unnecessary Extras: Be wary of extra features or services included in your finance package. If these weren't clearly agreed upon or seemed obligatory, it might indicate mis-selling.

Inappropriate Finance Solutions: Reflect on whether the loan is compatible with your financial situation. Pressure to accept a mismatched finance option can also be considered mis-selling.

How can I gather evidence?

If you do find signs that your car loan may have been mis-sold to you, it’s crucial to gather evidence. This will help when you’re ready to make a claim.

Focus on collecting:

• Loan Documents: Obtain all relevant documents, including agreements, statements, and lender correspondence.

• Communication Logs: Keep a detailed record of all interactions with the lender, including emails and calls.

• Financial Statements: Organise documents like bank statements or credit reports to illustrate your finances at the time of the agreement.

How do I make a compensation claim?

Once you have the evidence you need, it’s time to make a claim. Here’s a brief step-by-step guide you can follow:

Step 1: Reach Out to the Lender or a Claims Management Company - Start by contacting the lender directly to discuss your concerns.

For a more hands-off approach, consider engaging a claims management company.

It's important to know if you do go down this route, the claims management company will likely take a large proportion of any compensation.

Step 2: File a Formal Grievance - If you aren’t happy with the lender's response, you can file a formal complaint, detailing the mis-selling and including evidence.

If you're using a claims management company, they will help you with this.

Step 3: Consult Regulatory Authorities – If the issue remains unresolved, seek help from bodies like the Financial Ombudsman Service or Financial Conduct Authority.

Step 4: Consider Getting Legal Advice - In complex cases, legal advice from a specialist in mis-sold car finance may be beneficial.

When will my complaint be reviewed?

The investigation by the FCA followed a sharp increase in complaints, so they’ve extended the date they expect to announce the findings of their investigation as well as their next steps to May 2025.

• If you complained on/after Nov 17, 2023: Your complaint can be paused until the FCA investigation concludes (May 2025).
• If you complained before Nov 16, 2023: Your provider should respond as usual.

This extension will also allow them time to review how firms should address complaints or whether they should work with firms on a new approach for managing and dealing with complaints. The FCA have extended the deadline that lenders and brokers have to respond to any complaints to after 4th December 2025.

If your complaint was lodged through a claims management company you should contact them about how this might affect your progress. It’s worth noting that even if you now decide to pursue the claim yourself you might still owe them a fee if successful.

If you made the complaint yourself, if it was lodged before the cut-off the process should continue normally.

What can I expect from a payout?

The amount you can expect from a payout in a mis-sold car finance claim depends greatly on the specific details of your case.

The Financial Ombudsman Service (FOS) has already received thousands of complaints and has ruled in favour of consumers in two cases involving mis-selling of car finance with discretionary commission arrangements. These cases against Black Horse (a part of Lloyds Banking Group) and Barclays Partner Finance can give us an understanding of how compensation might be calculated.

In both cases, the customer was awarded compensation equal to the difference between the interest rate they were charged and the lowest available rate at the time they bought the car:

A Blackhorse customer bought a £7,619 car and paid 5.5% interest, totalling £2,096 over 5 years. This was despite the lowest rate available being just 2.49% That's an extra £1,147 paid in interest due to mis-selling which the Financial Ombudsman Service ordered Blackhorse to repay the customer this difference, plus interest.

As every claim is unique, the compensation awarded will reflect the individual circumstances, including the extent of the mis-selling and any financial losses incurred.

With the current investigation into commission-based mis-sold car finance, the Financial Conduct Authority (FCA) is focused on ensuring fair compensation.

They aim to identify the most effective method to guarantee that those entitled to a settlement receive it in a fair, systematic, and efficient manner.

Specific pay-out amounts will vary based on individual claims.