A new BBC Radio 4 documentary has shed further light on the car finance scandal, which saw lenders allowing dealers to adjust interest rates they offered customers buying a vehicle on finance
A new BBC documentary has exposed further details about the unfolding car finance controversy, featuring industry specialists and members of the public who voiced their worries, eventually prompting a Financial Conduct Authority (FCA) probe.
The scandal involved lenders allowing dealers to modify interest rates they offered customers when buying a car on finance; the steeper the interest rate, the larger commission the dealer pocketed. These setups inevitably incentivised dealers to offer deals that often meant Brits were paying higher rates than necessary.
The FCA prohibited this practice in 2021 and is currently investigating these arrangements, stating on their website that following the ban there has “been a high number of complaints from customers about how much they were charged before the ban”.
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They continued: “Providers were rejecting most of these complaints, because they believe they haven’t acted unfairly and haven’t caused customers to lose out. Once we get the Supreme Court’s decision, if we find that motor finance customers have lost out, it’s likely we’ll consult on introducing a redress scheme.”
Further details, including guidance on submitting a claim if you suspect you were mis-sold car finance, can be found on the Financial Conduct Authority’s website.
Following the FCA’s prohibition of this practice, dealerships must now be completely upfront with customers regarding any commission they receive from transactions. In October 2024, the Court of Appeal made a ruling on three cases related to car finance, determining that it was unlawful for dealers to receive a commission from the lender without first informing the customer about the commission and obtaining their informed consent to the payment. The lenders implicated in the case are appealing the decision at the Supreme Court.
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At present, the industry is awaiting the Supreme Court’s verdict – and if it upholds the ruling, lenders could be compelled to pay out tens of billions in compensation for selling deals with higher interest rates to earn higher commissions.
Brits who purchased a motor vehicle on finance prior to 28 January 2021 might be eligible to claim, and it’s projected that payouts could amount to around £30billion. Consequently, the industry and UK government have voiced concerns about the economic impact.
As per the BBC, nine out of ten people in the UK who purchase a car do so on finance, making the sector the second largest lender to consumers in the UK after mortgages.
Helen Catt, reporting for BBC Radio 4 – File on 4 Investigates, interviewed the owner of an electric car dealership, who expressed concerns when they initially attempted to buy a car, before establishing their business.
They revealed: “The overwhelming thing is that everywhere we went, whether a small forecourt or a large dealership was that talking about the finance product that they would like you to sign up to was the first conversation – it led the conversation, rather than the car itself.”
Upon launching their own dealership, they resolved to prioritise their vehicles first, treating finance arrangements as mere logistics since the steep interest rates and commission deals “didn’t sit right with us”.
They alleged that during car purchases they were frequently presented with dual pricing, with reductions available if they chose to purchase the vehicle through finance.
