Car finance scandal branded 'one unholy mess'

A saga over the sale of car finance is "one unholy mess" and customers can complain to their lender if they are aggrieved, MPs have heard.

Lenders and dealers have been accused of hiding commission payments made when cars were bought on finance deals.

Facing the Commons Treasury Committee, bosses at the financial regulator were told the situation was a mess that would take a long time to resolve.

Dissatisfied car buyers should complain, if they felt their loan was mis-sold, the Financial Conduct Authority (FCA) said. Thousands of drivers have already done so.

The vast majority of new cars, and many second-hand ones, are bought with finance agreements.

About two million are sold this way each year, with customers paying an initial deposit, then a monthly fee with interest for the vehicle.

The FCA has been considering whether car buyers should be compensated for cases when car dealers received a commission from lenders, based on the interest rate charged to the customer. These arrangements were banned in 2021.

A recent Court of Appeal ruling widened the saga to other types of "hidden" commission payments and raised the possibility of millions of motorists receiving pay-outs. Banks have set aside hundreds of millions of pounds as a result.

Dame Meg Hillier described the situation as "one unholy mess" because dealers and lenders may not have been transparent to their customers.

She asked what advice there was for anyone caught up in it.

"If you are not satisfied with the terms of your finance agreement, you should contact your lender and put in a complaint to your lender if you are concerned," said FCA chief executive, Nikhil Rathi.

Hundreds of thousands of complaints are likely to have already been made, potentially ending with the largest compensation scheme regarding financial products since the payment protection insurance (PPI) saga.

Lawyers for car buyers say cases should proceed on the basis of the Court of Appeal ruling, but Mr Rathi was more circumspect.

He said that the courts had given different interpretations of the law regarding fixed commissions, while the FCA had already been looking into discretionary commission arrangements.

Lenders involved in the case have asked the Supreme Court to consider the case. In the meantime, dealers and lenders have been given a longer period to deal with complaints.

A clearer idea on whether a "structured redress system" which would either require customers to complain, or ensure firms to go back through cases and automatically pay compensation, would come next year, MPs heard.

Significantly, Mr Rathi said that the regulator was also considering whether the Court of Appeal ruling could have implications for other sectors.

He would not be drawn on which sectors, but analysts have suggested other "big ticket" purchases made on finance could come under the microscope.

In a wide-ranging hearing, the committee of MPs also questioned the FCA on investment risks facing consumers, financial influencers, and the operational effectiveness of the regulator.