What's behind car finance mis-selling complaints?

People mis-sold finance agreements when buying cars could wait months for a decision on whether they should receive compensation.

A decision by judges at the Court of Appeal has blown open an ongoing saga into hidden commission payments, with buyers possibly in line for payouts totalling billions of pounds.

But the higher Supreme Court has now agreed to hear an appeal against the decision.

The Financial Conduct Authority (FCA) has also allowed motor finance providers extra time to deal with complaints.

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.

In a complicated, and long-running, series of developments, many of these agreements have come under scrutiny.

In 2021, the FCA banned deals in which the dealer received a commission from the lender, based on the interest rate charged to the customer. It said this provided an incentive for a buyer to be charged a higher-than-necessary interest rate.

Since January, it has been considering whether compensation should be paid to people with these deals before 2021.

That has created the prospect of banks and other lenders having to make payouts totalling millions of pounds.

Last month, a decision at the Court of Appeal broadened the net of those who could receive compensation, potentially increasing the lenders' final bill to billions of pounds.

While the initial investigations surrounded discretionary commission arrangements, which were banned in 2021, the Court of Appeal decision widened the scope to any car finance commissions.

The three judges unanimously agreed that it would be illegal for the lender to pay any commission to the dealer without the informed consent of the buyer.

In other words, customers should be clearly told how much commission would be paid, and agree to it, without those details being buried in the terms and conditions of the loan.

The hearing included the test case of Marcus Johnson, 34, from Cwmbran, Torfaen, who bought his first car - a Suzuki Swift - in 2017.

He was not informed the car dealership was being paid 25% commission, which was added on to what he had to pay back.

"I signed a few documents and then drove away in the car," he told the BBC.

He said he had no option but to use finance when he bought the car, describing it as "heartbreaking" to find out so much extra money had been taken.

"Someone in my situation at that time, not being able to buy that kind of age car with cash, you would use finance," he said.

Following the judges decision in his - and two other car buyers' - favour, banks have set aside millions of pounds for potential compensation. Other lenders have temporarily paused any new deals.

It's thought the total cost of compensation could reach £25bn, according to analysts.

The FCA said that the decision could lead to dealers and motor finance providers receiving a deluge of new complaints, and it is urging people to make a claim if they feel they were the victims of mis-selling.

Some could come from people previously told they had no claim for compensation because they did not have a discretionary commission arrangement.

The regulator has extended the time providers have to consider complaints until December 2025, aligning the deadline for firms to deal with discretionary and non-discretionary arrangement complaints.

The time period covers claims regarding leasing deals, as well as Personal Contract Purchase (PCP) agreements.

The FCA also wants the Supreme Court to make a quick decision when it reconsiders the Court of Appeal's ruling.

It wants an orderly compensation system, if it comes to that.

The Finance and Leasing Association, the trade body for motor finance providers, welcomed the extension.

However, others have questioned whether it creates a further compensation delay for those who were mis-sold these agreements.