New investigation launched after car dealers caught charging secret commission – here's what it could mean for you


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The UK's financial watchdog will give car finance companies more time to deal with the expected flood of compensation claims following a court ruling last month.

The move is likely to mean millions more people will be eligible to claim after being charged so-called hidden fees by car dealers.

The move could help complainants, says the Financial Conduct Authority (FCA), as it will “avoid messy, inconsistent and inefficient outcomes for consumers making complaints, car finance companies and the market”.

What has happened?

Finance companies had been charging secret fees, called discretionary agreements, where the dealer could increase interest payments, raising the price of auto loans.

The regulator banned this particular practice in 2021 and has been investigating it.

Now the FCA is putting all commissions in the spotlight, opening the floodgates to more complaints.

Last month, the Court of Appeal ruled in favor of three car owners, deciding that finance brokers, including car dealers, could not charge a commission without saying how much they would accept.

How big is the problem?

Potentially vast. Car finance is huge in the UK – around nine in 10 cars in Britain are bought using some form of loan.

Last year, members of the Finance & Leasing Association, the trade body for lenders in the motor industry, provided loans worth £51 billion.

Lloyds Banking Group has set aside £450m in anticipation of having to pay out.

It's being compared to the PPI scandal of a decade ago, when consumers were sold insurance they either didn't agree to buy or didn't need.

The largest British banks were involved in the PPI scandal (getty)

Payment protection insurance generated more than £38 billion in payments to consumers who were wrongly sold products. These were often mortgage borrowers and credit card holders.

It began as a niche product that could protect some borrowers if they were unable to make loan payments, for example if they became ill or lost their job. But many policies would only pay off in very limited circumstances.

Am I affected?

If you bought a car, van, motorbike or motorhome before 28 January 2021 using PCP (personal contract purchases) or hire purchase, then maybe.

If you leased a car (where you never owned it) or bought it without a loan, then no.

According to Martin Lewis' Money Saving Expert website, around 40 per cent of deals included discretionary commission deals, but now that the watchdog has broadened its interest, many more deals could be captured.

How should I claim?

As with the PPI scandal, a huge industry has grown whose goal is to help you file a claim. But these claims management companies will eat up a big chunk of your compensation, and in many cases, they don't do anything you can't do for free.

Instead, complain directly. Contact your lender – this is the company that collected your monthly payment – ​​and ask if your agreement included discretionary commission agreements. Martin Lewis says let's make it clear that this is not a complaint, just a request for information.

If the answer is yes, file a complaint to start the claim process. Lewis has put together a step-by-step guide.

Otherwise, that may not be the end if other fees are deemed to have been applied incorrectly. Ask about other commissions and stay tuned for news from the control body.

This particular type of mis-selling is just one of the many ways motorists have been deceived. The other notable example is the diesel scandal.

How much time do I have?

There are limitations on the time you have to claim money back after a mis-selling scandal. Generally, it must be within three years of becoming aware of the problem.

But in addition to these guidelines, the longer you wait, the further back you will be in line to receive your payment.

On the other hand, the FCA has indicated that it could put a formal redress plan in place, which would make the process easier, meaning it might be worth waiting a month or two, especially if your deal was recent.

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