Car buyers may have been charged unfair interest rates on motor loans, according to the UK’s financial regulator.
ADVERTISEMENTPeople in the UK who bought a car using a loan between 6 April 2007 and 27 January 2021 could have been charged unfair rates.
That’s the verdict from the Financial Conduct Authority (FCA), who have launched an investigation into the matter.
The inquiry, set to be concluded in September, will determine whether banks knowingly deceived customers through discretionary commission deals.
This means that brokers, or car dealers, were allowed to adjust the interest rates on loans offered towards vehicles, a practice that was banned in January 2021.
It’s thought that some dealers were deliberately inflating the borrowing costs in order to increase their commission on the loans.
Many buyers, believing loans were given at a fair price, did not argue for better rates.
The FCA estimates that 95% of car finance deals had a commission element, and that 40% followed the discretionary commission model.
According to HSBC, the scandal may mean banks are forced to pay buyers £16 billion in compensation, although Citi bank forecasts a softer £9 billion pay-out.
The final figure depends on a number of variables, notably how the FCA splits the burden between lenders and car dealers, and whether all those affected should be compensated, irrespective of whether they file for compensations.
As of 15 February, it was thought that around 865,000 claims had been launched by buyers, according to broadcaster ITV.
The FCA has extended the amount of time firms have to respond to claims, meaning that the response deadline is 25 September 2024.
Buyers who may have been given an unfair loan are nonetheless being urged to come forward as soon as possible.
Since the FCA's announcement, shares in Lloyds Banking Group, which owns the UK’s biggest motor finance provider Black Horse, have dropped nearly 4% up to 21 February.
Shares in Close Brothers bank have also plummeted since news of the investigation broke.
