Timeline of the Motor Finance Scandal
The motor finance industry in the UK has faced significant scrutiny in recent years, culminating in a major scandal involving mis-sold motor finance and car loan agreements. This timeline outlines the key events leading up to and following the revelations about these commissions. Long story short: initially it looked like 40% of motor finance agreements had been mis-sold. Since the Court of Appeal ruling in October 2024, that number has increased to 95%.
January 2021: FCA Bans Discretionary Commission Agreements
In January 2021, the Financial Conduct Authority (FCA) introduced a landmark ban on discretionary commission agreements (also known as DIC agreements) in the motor finance sector. These agreements allowed car dealers to determine the interest rate on finance deals, earning higher commissions for charging customers higher rates. The FCA's ban aimed to make lending practices more transparent and ensure customers were not overcharged for car finance agreements.
This move followed growing concerns about the lack of transparency in the motor finance market and the potential for consumer harm. The ban marked a significant step towards fairer treatment of borrowers, setting the stage for further investigations into past practices.
January 2024: FCA Launches Investigation into Historical DIC Agreements
Three years after the ban, the FCA announced an investigation into the use of discretionary commission agreements between 2007 and 2021. During this period, approximately 40% of all car finance purchases were believed to involve these agreements. The investigation aimed to assess the scale of consumer harm caused by these practices and determine whether lenders and dealers should face further regulatory action or redress obligations.
This announcement sent shockwaves through the motor finance industry, as it raised the prospect of large-scale compensation claims. Borrowers who had been overcharged due to undisclosed or excessive commissions were now potentially eligible for redress.
February 2024: Lloyds Banking Group Sets Aside £450m
In response to the FCA investigation, Lloyds Banking Group, which owns Black Horse Finance, announced it had set aside an initial £450 million to cover potential claims related to mis-sold car finance agreements. This move signaled that major lenders were preparing for significant financial fallout from the scandal.
July 2024: FCA Extends Investigation Timeline
By mid-2024, the FCA extended its investigation into historical DIC agreements by a further eight months. The regulator indicated that the results of the investigation would now be published in May 2025. Importantly, the FCA also confirmed that lenders would not be required to respond to motor finance complaints until December 2025. This extension provided more time to assess the scale of the issue but delayed resolution for affected borrowers.
The FCA’s statement noted that a redress scheme was becoming increasingly likely, further raising expectations that millions of car finance agreements would be subject to compensation claims.
October 2024: Shock Court of Appeal Ruling
The landscape of the motor commissions scandal changed dramatically in October 2024, when the UK Court of Appeal issued a landmark ruling. The court found it illegal for lenders to pay commissions to car dealers without obtaining the informed consent of the customer. This ruling significantly expanded the scope of the mis-selling scandal, making more than 95% of all car finance agreements potentially eligible for compensation.
Key points of the ruling included:
Lenders breached their legal obligations by failing to disclose commission payments to borrowers.
Borrowers were entitled to recover commissions paid without their consent.
In some cases, lenders might also be required to refund interest and fees associated with the agreements.
Following this ruling, HSBC estimated that total compensation across the industry could reach an eye-watering £46 billion.
November 2024: FCA Consultation on Timeframe Extension
In November 2024, the FCA launched a consultation to extend the timeframe for submitting car finance commission claims. This proposal aimed to ensure that the vast majority of affected borrowers could seek redress, even for agreements dating back more than a decade. The consultation reinforced the likelihood of a large-scale redress scheme being introduced in 2025.
What’s Next?
The fallout from the motor commissions scandal is far from over. In April 2025, the Supreme Court is set to review the Court of Appeal’s decision, which could either uphold or modify the ruling’s implications. Meanwhile, the FCA’s investigation continues, with results expected in May 2025.
Borrowers should monitor these developments closely. If you believe you may have been affected, it’s worth exploring your eligibility to claim compensation now. With an estimated 95% of car finance agreements falling under the scope of the scandal, millions of consumers stand to benefit from redress.
