The £13 Billion Question
UK mis-sold car finance shocking figures:
Redress Fund
£13 B+
Analyst estimates of potential industry-wide redress.
People Affected
10 M+
Number of finance deals potentially mis-sold since 2007.
Complaint Surge
+550%
Increase in car finance complaints to the FOS Q4 2023.
Claims via Solicitors
4 M+
Claims being pursued by legal firms on behalf of consumers – estimate to date.
The Core Problem: What Was a DCA?
This now-banned practice allowed car dealers or brokers to adjust the interest rate offered to a customer. Discretionary Commission Arrangements (DCAs) use of higher interest rates typically meant a larger commission for the broker, creating a conflict of interest.
Customer
Wants to buy a car on finance.
Broker / Dealer
Could increase interest rate to earn more commission.
Lender
Provided the finance and paid commission to the broker.
UK Car Finance Market
The vast majority of new car purchases are funded by finance agreements like PCP (Personal Contract Purchase) and HP (Hire Purchase).
An estimated 90% of new cars are purchased using finance.
Scale of the Issue
DCAs were present in a huge portion of agreements mis-sold between 2007 and 2021, affecting millions of consumers.
Up to 75% of finance deals in this period may have involved a DCA.
Financial Impact on Lenders
Major UK lenders have started to set aside significant funds (provisions) to cover potential redress and legal costs. This signals the serious financial implications of the FCA’s review. More lenders are expected to announce provisions as the investigation continues.
Provisions announced by major lenders in early 2024 (Lloyds and Close Brothers).
Key Legal & Regulatory Timeline
DCA Mis-selling Period
The core period during which Discretionary Commission Arrangements were widely used by brokers, leading to the current consumer claims.
FCA Bans DCAs
The FCA officially bans discretionary commission arrangements in the motor finance market, citing consumer harm and conflicts of interest. This marked the end of the practice.
Key FOS Decisions
The Financial Ombudsman Service (FOS) issues key rulings (e.g., in cases for Mrs. Y and Mrs. G) finding in favor of consumers, ordering lenders to refund the full commission plus interest, strengthening the claim mechanism.
FCA Launches Full Investigation
The FCA announces a formal investigation into historical DCA practices, citing the high volume of complaints and the FOS’s recent decisions, triggering the current claims surge.
Complaint Deadline Pause
The FCA pauses the 8-week deadline for firms to respond to DCA-related complaints, to allow them to manage the investigation and ensure a consistent approach to potential redress.
FCA’s Next Steps
This is the FCA’s deadline to publish its findings and communicate the next steps, which could include the implementation of a formal redress scheme for all affected consumers.