Martin Lewis has offered fresh advice around a major scandal dubbed ‘the new PPI’, as regulators confirm millions of UK drivers could be entitled to compensation.
In January, the Financial Conduct Authority (FCA) launched an investigation into potential misselling of Discretionary Commission Arrangements (DCAS) in car finance policies.
Around 80% to 90% of UK car owners purchased their vehicle on finance, and as much as three quarters could be owed money back, with the average payout estimated to be in the thousands.
Although a ruling won’t be made until May next year, the Money Saving Expert founder has now issued an update after the FCA made a new announcement, which he described in his weekly newsletter as ‘absolutely huge’.
What is the latest announcement on DCA car finance compensation?
The latest update on the car finance compensation saga saw the FCA announce that, should misselling payouts become necessary, they will be made through an industry-wide redress scheme.
This is important because, under section 404 rules, people will not have to individually seek redress from their lenders.
Instead, the FCA will instruct the companies to find anyone who is eligible (based on their criteria) and then make a compensation payment in accordance with the ruling’s terms.
While the FCA is still technically ‘consulting’ on this, Martin states in his latest update that this ‘pretty much means it has made it’s mind up’ on the issue.
Who might be eligible for DCA car finance compensation?
In his MSE newsletter, Martin noted that the criteria for misselling is yet to be announced.
However, you may be eligible if you bought a van, campervan or a motorbike on finance between April 2007 and January 28, 2021, provided the vehicle was for personal use and through a Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement.
Between 40% and 74% of vehicle finance policies taken out during this time had DCAs included, allowing firms to increase interest rates at any time without telling the customer, with dealers and brokers earning huge commissions, hooked to the interest paid.
While these agreements have since been banned, people who had a DCA before this and weren’t made aware may have been unfairly charged.
The refund rules apply even if the original user has now passed away, as the relevant executor or beneficiary can claim on their behalf.
Already paid off the vehicle? Or don’t own it anymore? That doesn’t matter either: you can still make a claim and get that money firmly back in your pocket.
How much DCA car finance compensation could you be due?
According to Martin and MSE compensation could stretch into the thousands with the average payout potentially being around £1,100.
The finance guru’s site explains: ‘For discretionary commission arrangements, I think it probably boils down to somewhere between two things.
‘The first one would be; if they pump the interest rate up from the minimum; you would get all the difference between the minimum of what they pumped it up to back, and the typical payout for that is going to be around £1,100.
‘But what the regulator may say is no, actually this is too low. We’re going to say what we think a minimum interest rate is, and that might vary depending on situation.
‘And we’re only going to give you the difference back between the minimum interest rate and what you were charged.’
Should you put in a complaint for DCA compensation?
While the latest update means compensation will likely be paid automatically, Money Saving Expert has a free tool for lodging a complaint in case you wish to draw what Martin Lewis described as ‘a line in the sand’ as ‘there’s no impact on you doing that’.
He previously concluded that a time limit for claims may be introduced for the FCA’s investigation closing – in which case only those that complained ahead of that date would receive compensation.
‘The key to all this is to get a complaint in ASAP,’ said Martin in his newsletter. ‘The sooner you log a complaint may mean the less chance you’ll be excluded.’
However, in more advice, he also added, ‘Is it worth complaining about now? On the whole, no, because we think it’s going to be mass redress. But, I mean, it might be worth putting a line in the sand if it doesn’t cost you and you want to put a complaint in.’
Since MSE launched their tool in February, a staggering 2.3 million complaint letters have been sent.
Should you use a claims firm to make a DCA complaint?
Martin also warned that anyone thinking about making a claim through a ‘no win, no fee’ service should not do so.
This is because, if compensation is paid, it will now be sent directly to the person needing redress without the need for a claims firm to file a complaint.
The MSE site explained: ‘Now, what’s very important on this is anyone who is thinking of doing this via a claims firm – who are going to take 25% of what you get – just don’t do it.
‘It’s very likely, if a payout is going to come, you’re going to get that money automatically’.
This article was originally published on July 3, 2024.
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