Martin Lewis has urged those who bought a car in the past few years to take action as they could be owed thousands of pounds.
The issue affects people who were loaned funds through a car finance deal to purchase a motor vehicle such as a car, van or campervan, where the finance agreement was dated before January 28, 2021.
Mr Lewis said on his ITV show about 40 percent of these people had a “discretionary commission arrangement” and could be owed money, with the Financial Conduct Authority (FCA) currently investigating the issue.
Explaining how these arrangements worked, he said: “These finance firms let car dealers make up the interest rates, so they could charge more interest, so that they got bunged more commission.
“They did not tell you that, which means you could not negotiate, you didn’t know it wasn’t a fixed interest and you could bring it down, which means millions of you overpaid, crucially, without knowing. So you will not know if this was you.”
Mr Lewis urged those who may be affected to file a complaint with the company or bank than leant them the funds, as the FCA has encouraged the firms to deal with complaints before it makes a ruling on its probe, which is due on September 25.
He said people should complain as soon as possible as the regulator may later decide some people are timed out of claiming if they put their complaint in too late.
The issue includes personal contract purchases and hire purchase arrangements but not personal contract hire, also known as leasing. The vehicle had to be used primarily for personal rather than business use.
He said a person who took out several car finance deals, such as to purchase a number of vehicles, could be due multiple payouts.
The financial expert said people who don’t know who their lender was may be able to find out by going over their old bank statements, or by calling the dealer they bought the car from.
Sheldon Mills, executive director for Consumers and Competition at the Financial Conduct Authority (FCA), appeared on the show. He said the lender firms should be able to help people find the records of when they took out the policy.
To show how much people could be owed, Mr Lewis shared a previous Ombudsman case where a person borrowed money to buy a car for £7,619.
They paid a flat interest rate of 5.5 percent and paid £2,096 interest over five years, while the lender’s cheapest rate available was a flat £2.49 percent, which would have cost them just £949.
As a result, the lender was ordered to repay them the difference between the two amounts, paying them back £1,147.
But Mr Lewis said those who bought more expensive vehicles “could be owed thousands back” and the FCA may choose to make the lenders give all the interest back.
Mr Mills said: “We’re going through an investigation and we will make a decision, but we haven’t decided yet.”
Mr Lewis said he thinks people will be able to claim no further back than April 2007, as this is when Ombudsman took over car finance.
How do I make a complaint?
You will first need to find out from your lender if your finance had a discretionary commission arrangement and if it did, to file a time-stamped complaint.
Mr Lewis recommended to do this in writing or over email and if you make a call, to request a reply in writing. His MoneySavingExpert site has provided a template for this.
One viewer write in to the show and said they had filled in the template and it only took them five minutes to do this and get it sent off.
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