Mr Lewis said: “This is important news for anyone who bought a car on Hire Purchase (HP) or Personal Contract Purchase (PCP) finance between April 2007 and November 2024. The regulator, the Financial Conduct Authority, has just announced its planned redress scheme, the biggest one we’ve seen since PPI.
“Of the 32 million car finance agreements in that time, 14 million were likely mis-sold, according to the regulator, and are due a typical payout of £700. And what really made me raise my eyebrows is that the way it’s going to be paid out is by far the simplest form of redress scheme we’ve seen, never mind for one of this scale. So let me talk you through it in detail.
“This is actually a consultation. But in reality, it’s the regulator setting out what it wants to do. It has to by law allow a consultation, but it’s unlikely to change apart from at the edges.”
The finance guru explained there are three types of car finance mis-selling with motorists falling into these categories likely to enjoy the benefits of payouts.
Firstly, the “big one” is road users who know they paid discretionary commission arrangements on their car finance deal. This means road users were charged a higher interest rate which is unfair if road users were not aware. The experts claim this could account for 11.4 million arrangements, with road users able to find out if they are affected by writing to their lender.
Mr Lewis continued: “The next is where the dealer was contractually tied. In other words, it said ‘we’ll go to a panel of lenders to find you the best car finance’, but in reality, one firm had first dibs and if it wanted to give you car finance, that is the deal that you were given. That’s 3.2 million cases.
“The third one is unfairly high commission. And that’s 2.9 million cases. This is where the amount of commission was both over 35% of the total cost of the credit and over 10% of the amount that you borrowed. If both those things add up, then that is a distortion of the market and you were charged too much.”
Mr Lewis then explained that motorists will get back a percentage of the discretionary interest paid on car finance deals.
He stressed this will be roughly 17%, meaning that for every £1,000 of interest motorists were charged, road users will get back around £170. However, the scheme is not calculating fees on a case-by-case basis, meaning some motorists could get less.
But, Mr Lewis explained that this is offset by how easy it will be for most people to get hold of their money when the scheme goes live next year.