Thousands of drivers may have been put on a higher interest rate without realising when buying a car on finance.
Some dealers or brokers earned a better rate of commission if car buyers were placed on higher interest rates.
The latest news from the Financial Conduct Authority (FCA) would mean banks would be forced to proactively tell customers if they had been mis-sold car finance.
In a recent Court of Appeal case, three people claimed they hadn’t been aware of this when they purchased their vehicles.
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The ensuing scandal could end up costing lenders hundreds of millions of pounds to rectify.
Here’s everything you need to know about it.
The car finance scandal – what exactly happened?
When you buy a car on finance, you are effectively loaned the money, which you pay off in monthly instalments. These loans carry interest, organised by the brokers (the people who sell you the finance plan).
These brokers earn money in the form of a commission (which is a percentage of the interest payments).
Before January 2021, some car finance lenders had what was called a “discretionary commission arrangement” (DCA) with brokers.
Under these arrangements, brokers earned more commission if buyers were put onto a higher interest rate – this incentivised sellers to maximise interest rates, which meant many were unfairly charged too much.
The Financial Conduct Authority (FCA) banned this practice in 2021, but a high number of consumers have complained they were overcharged before the ban came into place. The Financial Ombudsman Service (FOS) has 20,000 open complaints they are dealing…
