By DCB Editorial, October 24, 2024
Much has been said over the past few years about the mis-sold car finance scandal. The issue, which affects millions of drivers in the United Kingdom, has made headlines across all media outlets. But how big is the problem?
The best way to answer the question is by analysing the numbers involved. Spoiler alert: the estimates provided by experts are astronomical in every sense. Read on.
The Unfolding Financial Crisis Impacting Millions
The scandal revolves around allegations that several major lenders have mis-sold car finance agreements, particularly Personal Contract Purchase (PCP) and Hire Purchase (HP) contracts. The issue centres on the use of discretionary commission arrangements (DCAs), where dealers received commissions based on the interest rates they charged customers, leading to inflated costs for drivers.
Three of the country’s top lenders – Lloyds Banking Group’s Black Horse, Santander UK, and MotoNovo Finance – are now facing the possibility of almost £1 billion in compensation claims. A class action lawsuit has been launched, accusing these companies of imposing excessive interest on nearly one million contracts.
Black Horse, MotoNovo Finance, and Santander collectively control nearly 57% of the market, with claims estimated at £624 million for Black Horse, £209 million for MotoNovo, and £166 million for Santander UK.
Black Horse is a division of Lloyds Banking Group. To mitigate the potential impact, Lloyds Banking Group has set aside £450 million, mirroring similar proactive measures taken by other firms. This business’s exposure has led to a 10% drop in Lloyds’ shares since early this year. Analysts suggest that the total cost to Lloyds could exceed £2.5 billion, potentially making it the hardest hit among all the implicated lenders.
Close Brothers, another major player in the car finance sector, has been making financial adjustments in light of the ongoing regulatory scrutiny. It recently agreed to sell its wealth management unit to Oaktree for up to £200 million as part of a larger £400 million capital bolstering initiative, aimed at preparing for the potential outcomes of the probe. Analysts forecast that Close Brothers could face redress costs of up to £200 million, while the industry-wide figure might reach a staggering £16 billion.
Industry-Wide Financial Turmoil and Regulatory Scrutiny
The Financial Conduct Authority (FCA) launched an investigation into the mis-selling practices in January 2024, and the subsequent deluge of feedback has been overwhelming. Since the announcement, over 1.7 million complaints have been submitted via the MoneySavingExpert site alone, and early estimates suggest payouts could reach £750 million for those filing grievances.
Early FCA findings indicate that 40% of car finance agreements involved discretionary commission arrangements, which have been central to the issue. Interestingly, data from those using the MoneySavingExpert tool shows that 74% of those who filed a complaint were told by the lenders they had a DCA, with percentages varying significantly between firms.
For institutions like Black Horse, MotoNovo, and Close Brothers, over 90% of customers received confirmation of DCAs, whereas less than 40% did with VW Financial Services. The sheer scale of the scandal has prompted lenders to make moves to protect their stability, which suggests that they fully anticipate the need to pay out substantial compensation to affected customers.
Why Motorists Should Consider Making a Claim
The car finance scandal has rapidly become one of the biggest mis-selling issues in recent history. With billions potentially at stake and the conclusion of the FCA’s investigation on the horizon, the question remains just how deep the impact will be – not only on lenders but also on consumer trust in the finance industry.
If you are one of the millions of affected motorists, making car finance claims can help you recover the money you’ve lost due to excessive interest charges. Many drivers hesitate because they believe their case isn’t significant or that they haven’t lost much, but the figures show otherwise.
Furthermore, there are resources and support available to guide you through the process. Various legal organisations are committed to helping affected motorists understand their rights and navigate the claims procedure. You don’t have to do this alone—there’s help at every step, ensuring you get the compensation you’re entitled to without stress.
This is a major, reputable case, with support from consumer champions like MoneySavingExpert’s Martin Lewis. Moreover, this is more than just a financial opportunity; it’s a chance to be part of something bigger. The mis-sold car finance scandal isn’t just about numbers—it’s about fairness, justice, and holding those in power accountable.
