Motor finance: Firms warned to hold cash back for probe
The UK's financial watchdog has warned motor finance firms to hold back cash for potential payouts as it continues an investigation into the sector.
The Financial Conduct Authority (FCA) also revealed that firms "are struggling to promptly provide" data for the probe.
About 17,000 people have made already made complaints to an ombudsman.
The cases surround commission arrangements between lenders and car dealers.
Some lenders had allowed dealers to adjust interest rates, which would improve the commission they received.
As a result, these arrangements created an incentive for brokers to increase how much people were charged for their car loan.
In 2021, the FCA banned these discretionary commission arrangements, following a review, claiming it would collectively save drivers £165m a year, or about £100-£200 on a loan.
The potential cost of compensation has raised some comparisons to the amount paid out during the payment protection insurance (PPI) mis-selling scandal, which cost banks tens of billions of pounds.
In February, banking giant Lloyds said it had set aside £450m to cover the potential cost of the investigation.
Lloyds is seen as the most exposed of the major banks to any claims as it owns one of the UK's largest motor finance providers, Black Horse.
Speaking to the BBC's Today programme at the time, Lloyds chief executive Charlie Nunn said: "The extent of any misconduct or loss on behalf of customers, if any, remains very unclear so we welcome the FCA's announcement a few weeks ago to look into this to provide clarity for customers and the industry."
Barclays, meanwhile, is challenging a ruling that it unfairly paid commission to a car finance broker. When the FCA first announced its probe in January, it cited two cases, including that of a "Miss L", who was found to have been mis-sold car finance by Barclays Partner Finance.
The Financial Ombudsman ruled that the bank "had failed to act fairly" as the customer had not been made aware that her package included a £1,600 commission to a credit broker.
Barclays is appealing the decision, although according to Sky News reports, it has complied with the award required by the ombudsman.
In the update on Friday, the FCA also said it had faced issues getting the necessary information from various companies to conduct its investigation.
"Firms involved in our review have engaged with us constructively. However, many firms are struggling to promptly provide the data we need," it said.
What to do if you think you are owed compensation for your car finance
Claims for compensation can be made if you bought a motor vehicle on finance before 28 January 2021 and the finance provider and car dealer had a discretionary commission arrangement.
The Financial Ombudsman service advises that you should first talk to your car dealer or finance provider, so they have a chance to put things right
If you are unhappy with the response, then you can complain to the Ombudsman
Your complaint can be about finance providers, credit brokers - such as the car dealership - or other credit intermediaries
If the Ombudsman decides to handle your case, it says its aim is to put you back in the position you would have been in if the problem hadn't happened
You can read guidance on motor finance complaints on the Financial Ombudsman site here, and guidance from the Financial Conduct Authority here.
