Car Finance Scandal FCA Probes Millions of Mis Sold Loans

The UK financial watchdog is scrutinising 30 million car finance agreements, as part of a sweeping investigation into potentially mis-sold loans that may trigger a multibillion-pound compensation scheme.

Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), told MPs that the agency is examining car finance deals arranged between 2007 and 2020 to determine if banks or lenders engaged in unlawful practices, particularly regarding commission payments to car dealers. Of the total agreements under review, he noted that approximately 14 million could ultimately qualify for redress under a mass compensation scheme set for launch in 2026.

At the heart of the probe are so-called discretionary commission agreements (DCAs), which rewarded car dealers with higher bonuses for increasing the interest rates on customer loans. The FCA banned these arrangements in 2021 after a Supreme Court judgment found that motor finance agreements where commissions were not properly disclosed could be deemed unfair, depending on customer circumstances and the scale of commission involved.

Rathi acknowledged that many consumers, unaware of these secret commissions, may not have been given a fair interest rate and were inadequately informed about how costs were calculated. He stated, “A very significant proportion of those, we do think, probably breached the law when it came to disclosure and then by extension unfair relationships.”

The FCA’s executive director Sheree Howard emphasised that decisions over compensation will be heavily dependent on the facts of each case. Estimates suggest most successful claims are likely to result in payouts of less than £950 per person, with the overall bill for lenders and banks projected in the range of £9bn to £18bn.

As the FCA prepares to introduce its compensation scheme, impacted customers are advised to monitor developments closely and consider their own eligibility should the scheme open early next year.