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'FILLING THEIR BOOTS'
‘Ridiculous’ rip-offs were ‘encouraged’ by major firms in car finance scandal, insiders reveal – are you owed £1,000s
Read on to see if you might be eligible for a payout
CAR finance insiders have revealed that "ridiculous" rip-offs were encouraged by major firms for years.
The dodgy deals are now the subject of an investigation by the Financial Conduct Authority, which estimates that up to 40% of loans may be affected.
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Two former employees from a major finance provider, who have claimed that they were pressured to increase the rate of interest they offered customers in order to line the company's pockets.
The insiders, who have since blown the whistle to assist in recovering compensation for victims, allege that unscrupulous and even illegal tactics were regularly employed.
While the discretionary commission agreements that are the subject of the probe were banned in 2021, the pair say that companies attempted to skirt the rules to "fill their boots" for as long as possible.
We knew full well what we were doing was wrong
Employee S
Employee L told an investigation by law firm Bott & Co: "We were told to offer ridiculous rates, 10% if lucky, but usually 15-20%.
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"We were targeted on the number of deals per month per advisor which was typically 30-35 and were encouraged to get over £1,000 per deal.
"We had a lender who would finance pretty much anything, who would pay out the same day at over 20%, often 30%.
"This meant that we were working against the monthly payment target of the consumer to cash in ourselves."
They alleged that during the sales process, customers were encouraged to apply at multiple lenders, using a higher rate each time.
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According to the source, buyers were incentivised to do this as it did not involve running a fresh credit search.
The employee added: "Even the internal Compliance Manager had expressed concerns that some of the activities relating to rate setting weren’t compliant and basically illegal.
Martin Lewis warns EVERYONE who owns a van, car or motorbike they could be owed £1,000s
"Yet those activities continued."
These concerns were echoed by Employee S, who joined the same firm in 2017.
They claimed: "As long as customers could afford the monthly payments, we could change the rate to maximise our commission.
"There was a lot of pressure to get the most out of each deal as we were targeted on monthly income which should have been around £20,000 per employee per month.
"If the deal was going to be lost, we would reduce it, either way, the company got the business.
"We knew full well what we were doing, and the practice was encouraged by the firm."
What is the FCA investigating and who is eligible for compensation?
What is being investigated?
The FCA announced in January that it would investigate allegations of "widespread misconduct" related to discretionary commission agreements (DCAs) on car loans.
When you buy a car on finance, you are effectively loaned the value of the car while you pay it off.
These loans have interest payments charged on top of them and are often organised on behalf of lenders by brokers - usually the finance arm of a dealership.
These brokers earn money in the form of commission - a percentage of the interest payments on the loan.
DCAs allowed brokers to, to a certain extent, increase the interest rate on a loan, which in turn increased the amount of commission they received.
The practice was banned by the FCA in 2021.
Who is eligible for compensation?
The FCA estimates that around 40% of car deals may have been affected before 2021.
There are two criteria you must meet to have a chance at receiving compensation.
First, you must be complaining in relation to a finance deal on a motor vehicle (including cars, vans, motorbikes and motorhomes) that was agreed before January 28 2021.
Second, you must have bought the vehicle through a mechanism like Personal Contract Purchase (PCP) or Hire Purchase (HP), which make up the majority of finance deals and mean you own the vehicle at the end of the agreement.
Drivers who leased a car through something like a Personal Contract Hire, where you give the car back at the end of the lease, are not eligible.
You can check whether you might be owed money and submit a complaint using Martin Lewis' free tool here.
The FCA is due to release its report on September 25, with chief executive Nikhil Rathi suggesting that the watchdog expects to find at least some evidence of malpractice.
Mr Rathi told The Times: "[It is] improbable we will find nothing to report as we look at historic motor finance sales."
The issue has been pushed heavily by consumer champion Martin Lewis, who anticipates that Brits could be owed millions in compensation.
The money-saving expert was left "staggered" when more than a million people submitted claims through his website in just over a month.
A spokesperson for the FCA said: "We are carrying out work looking at historical motor finance commission arrangements. We are aiming to report back with our findings and next steps in September."
Adrain Dally, director of motor finance at the Finance and Leasing Association, the trade body that represents motor finance providers, said: "We represent motor finance lenders, all of whom supported the discretionary commission ban when it was introduced in 2021.
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"Not every customer with a DCA lost out, in fact the discretion to move the interest rate often meant that it went down so that the dealer could get the business.
"This delivered a good outcome for customers, but lenders recognised that transparency is the key to confidence, and most moved to flat rate as an open way ensure that dealers get paid for the service they provide."