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  • Writer's pictureMis-sold Car Finance

Mis-sold Car Finance. Are You Owed Compensation?



When Mrs Young spent over £7,600 on a used car in 2016, little did she know the tsunami of woes she was about to unleash on the UK banking sector.

That’s because Mrs Young was ‘unfairly’ sold a loan to pay for her car.

Lloyds Banking Group’s finance arm, Black Horse, was the lender involved and had paid a commission to the car dealership to increase the rate on Mrs Young’s loan.  

Mrs Young, whose first name has not been disclosed in case documents, subsequently challenged the terms of the loan. Her experience has become a test case at the centre of a major investigation into whether banks knowingly ripped off customers through mis-sold motor finance.

The Financial Conduct Authority (FCA) has launched an investigation into the matter and is expected to report back in September.

The inquiry has sparked fears that banks could be facing a new PPI-style scandal that could drag on for years and prove hugely costly.

Estimates as to just how costly vary: Citi predicts up to £9bn of possible charges for banks. HSBC analysts say the issue could cost as much as £16bn.

Last week merchant bank Close Brothers, which offered loans to car buyers across 4,000 dealerships, axed a £100m dividend over fears about the scale of the FCA investigation.

“The banks are in this holding pattern because it’s yet to be determined whether there is systemic harm with the discretionary commission models,” said Kate Robinson at Avyse Partners, which advises lenders on regulatory issues.

Like many drivers, Mrs Young had bought her car using a loan from Black Horse, which controls 20pc of the car finance market. It had been arranged at her car dealership by the salesman, who was also a regulated loan broker.

Unbeknown to her, the salesman stood to earn a secret commission if Mrs Young agreed to a higher interest rate on her loan. She had already been turned down for four other loans, making her more vulnerable to accepting the deal.

Mrs Young ended up paying hundreds of pounds more than she otherwise would have done, according to the Financial Ombudsman Service (FOS),

Her compensation case, was upheld last month because she wasn’t told about the arrangement. She was awarded £630.

While her award is comparatively small, the scale of the car finance industry means the issue could prove hugely costly if mis-selling is uncovered on a market-wide scale.

Mrs Young was one of thousands who took part in a car finance lending boom during the 2010s. Gross lending for private car sales at dealerships almost tripled between 2011 and 2018, from £14bn to £47bn according to HSBC.

The FCA has for now blocked any further compensation claims until its investigation is complete. It is looking at car loans from as far back as 2007.

Robinson says the issue is not “black and white”.

“The responsibility has been pushed towards the banks but the brokers were involved in this process. From a lender’s point of view, these lenders have been held to the fire somewhat by brokers.”

While the official investigation may be ongoing, stock analysts have been quick to map the likely fallout.

According to HSBC, Lloyds is the most exposed because of its ownership of Black Horse. Estimates as to how much it may cost Lloyds range from £1.3bn to £2.4bn.

Investors are likely to raise the issue with Lloyds chief executive Charlie Nunn this week when the bank delivers its annual results.

Nunn is expected to reveal a big buyback of shares, with a £2.2bn payout forecast by the City. However, concerns about the car finance issue mean analysts are expecting the bank to register some form of remediation charge.

Lloyds is not the only bank involved. The ombudsman has also taken aim at Barclays, which made loans through its subsidiary Clydesdale Financial Services, trading as Barclays Partner Finance.

The bank was ordered to pay compensation last month after the dealership failed to tell one customer, referred to as Miss L, about commissions during her car purchase in 2018.

Barclays is not expected to be as exposed as Lloyds because of its smaller presence in the market. According to HSBC, Barclays had a market share of just 2.5pc.

Shore Capital analyst Gary Greenwood said Barclays’ “tiny exposure” means settling the matter would likely be a “rounding error” for the bank.

Natwest on Friday said it had no exposure to car finance, while Santander has said it is too early to tell.

A Barclays spokesman said it welcomed the FCA review, adding: “Any customers that have questions regarding the circumstances of their car financing loan should contact us directly.”

A Black Horse spokesman: “We are currently reviewing the recent FOS decision and will support the FCA with the upcoming industry review.”


‘I was gobsmacked when BMW charged me 11pc interest for a used car’.

Floods of complaints are lodged to dealers amid investigation into misconduct.

Peter McCabe paid 8.9pc interest on a loan for his BMW 5 Series saloon.

Interest rates were at an all time low of just 0.1pc when Peter McCabe visited a BMW dealership to secure a car loan in August 2020.

The 64-year-old was expecting a competitive deal thanks to low rates and his healthy credit score, but what he received was quite the opposite. He was left “gobsmacked” after the salesman offered him an interest rate of 10.9pc on a three-year loan worth £19,750.

Mr McCabe, from Telford, Shropshire, is one of the thousands of customers across the country who believes salesmen made up an interest rate on the spot, regardless of their credit history.

Floods of complaints have been lodged to dealers and brokers as the city watchdog investigates potentially widespread misconduct by those selling car finance at higher rates in return for extra pay from lenders.

So-called discretionary commissions were banned by the Financial Conduct Authority (FCA) three years ago after finding that individual buyers were paying over the odds-on car loans.

Mr McCabe, a loyal customer of a BMW dealership in Shrewsbury, bought a 5 Series saloon via a personal contract purchase (PCP) deal four years ago.

“It was a nine-month-old car with low mileage, and I thought it was a really good buy,” he said. “They told me the interest rate was 10.9pc, while for a new car it would be 3.9pc or 4.9pc.

“The difference was absolutely ridiculous. To say I was gobsmacked by the rate would be an understatement. I had a very good credit score, so there was no reason for the interest to be that high.”

Despite his shock, Mr McCabe did not back out of the purchase.

“The employee at the dealership said he was trying his best with BMW Finance to get the rate down for me, but they wouldn’t come down any further, so I settled with 8.9pc.

With the hefty rate confirmed, Mr McCabe was faced with an interest bill of £5,006 over the duration of the loan. Hating the idea of having to cough up such a large interest charge, he paid the loan off in full after six months.

“I paid it all off early but still had to pay £3,155 in interest as the interest on the loan was front-loaded. I feel let down as I don’t think I should’ve been charged that rate.

“I’m disappointed as I do consider myself to be quite money savvy. I was purely driven by my desire to get that car as it seemed perfect – I’m normally a bit more forceful in trying to get to the bottom of financial things.

“Had it been a private dealer, I maybe would have questioned it a bit more, but I’d had dealings with BMW Finance before.”

Mr McCabe has asked BMW Finance and the dealership if discretionary commission was used for his purchase. If it was, he could be eligible for compensation following the FCA’s investigation into mis-sold finance.

The watchdog, which is due to make a ruling in September, estimates that 40pc of car finance deals agreed between 2007 and 2021 were made with a discretionary commission arrangement. 

Simon Evans, head of the Consumer Redress Association, a financial claims trade body, said the investigation is positive news for consumers. 

“I urge all who took out car finance in the affected period to seek advice as to whether they have a valid claim,” he said. “In all likelihood, the vast majority will indeed be affected.”

Nine in 10 people buy new cars on finance, so millions of people could be owed large sums in compensation.

A spokesman for BMW said: “BMW Financial Services is taking all necessary steps to support the FCA during the course of their review and is committed to ensuring that affected customers are supported and provided with every assistance to minimise any inconvenience.”

They said they will only be able to provide complaint responses to customers after the conclusion of the FCA investigation.

If you think you have been mis-sold finance on your new or used car contact Claimline Legal UK now. Go to for more information or call us now on 0800 779 7457.



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