A Coventry driver could be in for a slice of an estimated £25 billion compensation after his case was used as a test in a legal ruling over mis-sold financial agreements. The contentious deals, known as Personal Contract Purchase (PCP) agreements, involved undisclosed commission payments.
A large number of vehicles are purchased using finance agreements where the customer pays an initial deposit followed by monthly instalments with interest for the car. In 2021, the FCA clamped down on arrangements allowing dealers to earn commissions from lenders tied to the interest rate charged to the buyer.
From January, the FCA has been deliberating on whether those caught up in such deals before 2021 should get compensation. A verdict last month at the Court of Appeal broadened the horizon, entitling victims of any hidden car finance commissions to compensation – potentially leaving lenders with a £25bn bill.
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During the hearing, judges concurred it was unlawful for lenders to pass commission to car dealers without the buyer’s consent. The proceedings incorporated a test case involving Michael Insular, 43, who financed a £8,000 Seat Leon in 2019 but ended up paying a staggering £20,000, which far exceeded the value of the car.
Michael said: “I looked online for finance options because I had no credit history. A company called me and said I’d been approved – it was the first time I’d ever been approved for car finance.
“I test drove the car, and it seemed decent at £8,000. But by the end, I was paying £20,000 with monthly payments of £326.
“I was amazed this could even be possible.” Michael was working as a chef earning £1,200 per month at the time of purchase. His car payments were costing him a hefty £326 per month.
Now unemployed, Michael has since sold the car and is hoping for compensation after his bank account took a hit from what he perceived as hidden payments. The Court of Appeal’s ruling brought hope to thousands of affected buyers.
However, the Supreme Court has now agreed to hear an appeal against this decision. Furthermore, the Financial Conduct Authority (FCA) has granted motor finance providers additional time to resolve complaints, which consumer advocates warn could further delay a resolution in claims.
For many buyers, the financial burden of these deals has been crippling. “I had no idea about the hidden commission, and the payments were basically bankrupting me. ” Michael said. “I am proud to be part of this action – it’s been extremely unfair on customers involved.”