Motor finance scandal could cost as much as £50bn payment protection insurance debacle

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Motor finance scandal could cost as much as £50bn payment protection insurance debacle
Published: Dec, 11 2024 10:17

The scandal in the motor finance industry could end up costing as much as the £50billion payment protection insurance (PPI) debacle more than a decade ago, the City watchdog has admitted. Stephen Braviner Roman, legal director at the Financial Conduct Authority (FCA), told MPs it would be ‘premature’ to say that the hit to lenders would not reach the same level as PPI.

That implies an even bigger potential cost than the highest estimate so far – from credit ratings agency Moody’s, which has suggested the total industry could be on the hook for as much as £30billion. Hundreds of thousands of customers have complained about the way car dealers sold loans to finance the purchase of vehicles.

Commission fees: Hundreds of thousands of motorists have complained about the way car dealers sold loans to finance the purchase of vehicles. The complaints centre on the practice of dealers receiving a commission from lenders for selling those loans. Earlier this year, the FCA began a probe into customers being overcharged as a result. It centred on the now-banned use of ‘discretionary commission arrangements’ (DCAs), where dealers were rewarded with higher commissions the higher the rates were on the loans.

But a Court of Appeal ruling in a separate case in October widened the scope of the scandal, leaving the industry stunned. The court said it was unlawful for dealers to receive a commission from lenders without receiving the informed consent of the customer.

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