Discretionary Commission Claims
On January 11, 2024, the Financial Ombudsman (FOS) made important decisions regarding car finance commission, involving Black Horse and Barclays Partner Finance. Essentially, these companies were charging people excessively high-interest rates to boost the commissions for car dealers. As a result of these decisions, FOS has instructed these companies to refund the affected individuals.
This situation is considered a scandal that could have impacted a significant number of people, possibly over 30 million. The FOS rulings now pave the way for many individuals and companies who took out car finance before January 28, 2021, to file No Upfront Fee claims with us. The issue's magnitude could become similar to the PPI (Payment Protection Insurance) scandal in terms of its impact and widespread implications.
Why Refunds Are Issued?
Before January 28, 2021, some car finance lenders allowed dealers to determine the interest rates on car finance agreements. This practice, known as "discretionary commission," involved dealers receiving higher commissions from lenders for higher interest rates, creating an incentive to set rates as high as customers might accept.
Since customers were unaware of this practice, it was referred to as "undisclosed" or simply "secret" commissions. These discretionary commissions were applied to many car finance agreements for both new and used cars. However, the Financial Conduct Authority (FCA) addressed this issue by banning discretionary commissions in car finance on January 28, 2021, making recent contracts exempt.
If you took out car finance before January 2021, there's a possibility you paid a higher interest rate than you should have. This was deemed unfair because:
1. You were not informed about it.
2. If you had known, you might have negotiated for a lower rate or sought finance at a better rate.
3. The dealer did not undertake any additional work to justify the extra commission.
A Typical Ombudsman Refund Decision.
The Financial Ombudsman Service (FOS) made key decisions regarding car finance cases, exemplified by the Black Horse case. In this case, the Ombudsman found that discretionary commissions were unfair, leading to a refund order.
Black Horse offered Mrs Y a range of flat interest rates between 2.49% and 5.5%. The dealer, having discretion, set the rate at 5.5% to maximize commission. The extra commission constituted over half of Mrs Y's total interest payment. Mrs Y was not informed about the commission or the dealer's role in setting the interest rate.
To rectify the unfairness, the Ombudsman ordered Mrs Y to be charged the minimum interest rate of 2.49%, with a refund for the extra commission, plus 8% per annum statutory interest.
Refund amounts may vary based on the range of interest rates a dealer could set. For instance, a higher refund is likely if a dealer could set rates between 3% and 10%, and you were charged 8% compared to being charged 5%.
Refund decisions reference "flat rates" as the way dealer commissions were set. Although flat rates may seem lower than APRs, they represent the same interest charge. For instance, an APR of 10.5% paid by Mrs Y equated to a flat rate of 5.5% on her car finance.
Do you qualify to make a compensation claim with us?
- Was your finance taken out before January 28, 2021?
- Is your car finance either Hire Purchase (HP), Conditional Sale (CS), or Personal Contract Purchase (PCP)?
- Were you charged discretionary commission?
What Doesn't Matter
- Whether you are still paying, finished paying, or defaulted on the finance.
- Whether you still have the car, sold it, or it was repossessed.
- The ease of paying the finance; the complaint is about being charged too much, not about affordability.
Contact Us
You can check if you qualify for car finance compensation with us for free. We will do all the necessary checks and take on your claim without the payment of any upfront fees. Meaning that you pay us nothing unless we win.
