April 24, 2024

New Martin Lewis car finance refund letter warning to people hoping for £1,100 compensation this year

Millions of claims could be lodged by drivers who may have overpaid on their car finance, as the emerging issue has the potential to be “on par” with the PPI scandal, a consumer compensation expert has said. The Financial Conduct Authority (FCA) is currently reviewing whether people could be owed compensation for being charged too much for car loans and is due to publish its findings on September 25, 2024.

The UK’s financial regulator is looking into hidden and unfair commission arrangements on vehicle loans taken out between 2007 and 2021. Simon Evans, the boss of trade group the Consumer Redress Association, which represents claims management companies, said that people are likely to have bought more than one car during that period, but added a “note of caution on the good work Martin Lewis is doing” to highlight the issue.

Last month, Martin Lewis revealed that 1.1million people had submitted complaints to their lender through a free tool on the MoneySavingExpert.com (MSE.com) website.

However, Mr Evans suggested that while many people will have downloaded the template complaint letter available for free on MSE.com, it may not mean that they will all have taken the next step of sending it to their lender.

Martin Lewis has issued a new set of need-to-knows around the car finance complaints, which includes what to do after you have sent the letter and next steps to take if your lender gives a response, or ignore it. You can read the full guide on MSE.com here.

The founder of MSE.com described the number of complaints made so far as “staggering” and suggested that car finance mis-selling could be the “second biggest reclaim payout in UK history” after the PPI scandal.

The PPI scandal saw UK banks pay out billions of pounds in compensation to customers who were mis-sold personal protection insurance from the mid-1990s.

Mr Evans suggested that the scale of those affected has the potential to be “on par” with PPI. “If you think about the number of people who have bought cars in the last decade-and-a-half, there is a swathe of people who will have bought it in that way,” he said, referring to the discretionary commission arrangements.

“What we are seeing through our member firms who are engaging with consumers at the moment is that actually each person has an average of about 2.3 claims. So they have had two or three cars in that period and all of those qualify for a claim.”

This is likely to cause a “large headache” for car finance companies, Mr Evans said. Meanwhile, the chief executive of the FCA, Nikhil Rathi, recently downplayed comparisons with the long-running PPI redress. He said he did not anticipate the car finance issue “playing out as PPI did”, partly because the watchdog has intervened earlier.

Lloyds Banking Group, which owns Black Horse, the UK’s largest car finance lender, said last month it was setting aside a provision of £450 million to cover potential costs related to the FCA’s review. That includes the potential compensation for consumers as well as administration costs in dealing with complaints.

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Close Brothers Group, which has a motor finance arm, revealed plans to bolster its finances by £400 million as it prepares for the impact of the investigation.

The watchdog is expected to set out its next steps from the review by the end of September.

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