Our reader bought a car in 2019. He later found that he was paying an unreasonably high APR on the PCP. He eventually had to return the car before the end of the term.
How you can claim for mis-sold car finance
Broadly speaking, there are two ways of going about it. You can either use a claims management company (CMC) to do it for you, or tackle it yourself.
If you choose the latter, you need to set out your case carefully and clearly. Then approach the broker who sold you the finance. If you don’t get any joy there and still think you have a case, go to the Financial Ombudsman Service (FOS). Its website will help you to make a claim.
The FOS says 90% of claims from people who think they’ve been mis-sold car finance are actually from third parties. Those are claims management companies (CMC).
How much of the payout does a CMC take?
CMCs are there to make money so they charge for their services. But the amount is capped. According to experts, most payouts are around £2,000. For awards between £1,500 and £9,999, the amount you pay in fees is capped at 28% or £2,500.
If you were paying a higher APR, you’d get the difference between those payments and the lower APR you should have been offered. And you’ll get the commission the dealer was paid. So if you are awarded £2,000 you’d actually get £1,440 after the CMC’s fees.
Some car dealers were selling cars without declaring commission on finance. Not suggesting Renault was one of them; we just liked the pic
Car finance mis-selling is the new PPI
Remember when your inbox was clogged up with companies asking if you’d been mis-sold PPI? They usually claimed you might be owed thousands of pounds. Experts estimate that the mis-selling of car finance could eclipse that.
One claims management company we’ve spoken to is dealing with more than 20,000 potentially successful claims per month (May 2022).
How was finance mis-sold?
The Financial Conduct Authority carried out mystery shopping exercises. These found that many car dealers were hiding the amount of commission customers were paying them for selling finance products. And if they did disclose commission, it was too late for the customer to do anything about it.
It’s not surprising that they hid this commission. A common practice was lenders paying brokers (often car dealers) more commission if they sold customers finance with higher interest rates. That incentivised the dealers to put often vulnerable customers who were struggling to get finance elsewhere on a higher APR (annual percentage rate).
Of course the customer would never know that a lower APR was an option. And the extra commission the dealer was getting for recommending that higher APR was bound up in the customer’s monthly payments. The whole system was a lose-lose for the customer.
In addition to this, by offering finance in the first place, dealers could target buyers who couldn’t get loans elsewhere. This meant lenders were offering finance with payments the borrower didn’t have a hope of keeping up. And if they did hand the car back, the penalties were often severe.
I’ve been writing about cars and motoring for more than 25 years. My career started on a long-departed classic car weekly magazine called AutoClassic. I’ve since pitched up at Autosport, Auto Express, the News of the World, Sunday Times and most recently the Daily Telegraph. When I’m not writing about cars and motoring, I’m probably doing some kind of sport or working in my garden.
