Vehicle Finance – Mis-sold ?
The Car Finance Compensation saga has hit headlines this month with a decision by the UK Supreme Court that the car finance companies that have loan financed vehicles since 2007 up to early 2021, do not have to pay compensation to millions of motorists that borrowed.
The court case focused on whether a car dealer had a duty to act in the interest of a party purchasing a vehicle by the method of vehicle financing. Car dealers receive a commission from lenders which is not seen by the borrower. The higher the interest rate the customer agreed to, the higher the commission the dealer would have realised. This model was banned in early 2021 by the Financial Conduct Authority (FCA).
Many solicitors and third-party companies jumped on the bandwagon over the last year or two, offering to represent individuals seeking to gain compensation subject to the recent court ruling. Most offered a no win, no fee paradigm, taking a percentage from the amount due on a successful claim. In the light of this court decision, many of these organisations may now be dropped out of the loop as their services for fighting compensation will be no longer required.
The mention of compensation has got a lot of motorists excited by the thought of monies due could either offset a portion of the total vehicle finance or be able to use the funds for other spends. In some cases, this has actually gone a step further whereas some who were expecting a payback, have expressed frustration about the court decision and declared that they are experiencing a current loss of spending power caused by these lack of funds. Obviously each case is different, but one could argue that when these loans were taken out, they were agreed to by the customer at the time and there was definitely no mention of a future compensation claim.
As this time of writing, there is talk of car finance agreements taken out containing a “discretionary commission arrangement (DCA)”, that could be eligible for some compensation. Large commissions under this arrangement are likely to be deemed unfair will be addressed. This could be good news for the motorist, but a financial headache for the lenders. Some of the large lenders have set aside funds in the event of this situation. For some of the smaller financers, this will hurt and may affect their business going forward.
Going forward, the average motorist will be more versed how vehicle finance arrangements operate which may effect their lending decisions on future purchases.
