The UK's motor finance industry is facing its biggest crisis since PPI as consumer groups demand investors pull a staggering £4 billion from leading lenders. The backlash centres on controversial discretionary commission arrangements that critics claim have systematically overcharged millions of car buyers.
What Sparked the Motor Finance Uproar?
At the heart of the controversy are commission structures that allowed brokers and car dealers to secretly increase interest rates on car loans. The Financial Conduct Authority (FCA) banned these arrangements in 2021, but the fallout continues to escalate as consumers seek compensation for historical mis-selling.
"This has all the hallmarks of the PPI scandal," warned one industry analyst. "We're talking about potentially millions of consumers who were placed into finance agreements without understanding how much their broker was earning from pushing up their interest rates."
Which Lenders Are Facing the Heat?
Several major motor finance providers are in the crosshairs, including:
- Close Brothers, facing calls to suspend its dividend
- Lloyds Banking Group's Black Horse division
- Specialist car finance providers across the market
The pressure intensified after the FCA launched a full-scale investigation into historical motor finance commissions, prompting a flood of compensation claims through claims management companies.
Why Investors Are Getting Nervous
Financial markets are showing clear signs of anxiety over the potential scale of liability. Close Brothers saw its shares plummet after Peel Hunt analysts advised clients to sell, citing "material risk" from the ongoing FCA probe.
The numbers are staggering: Some estimates suggest the total compensation bill could reach £16 billion if the FCA finds widespread misconduct. This has led to direct calls for institutional investors to divest their holdings in affected lenders.
What Happens Next for Car Buyers?
Consumer advocates are urging anyone who purchased a car on finance before 2021 to:
- Check their original finance agreements for commission details
- Submit complaints directly to their lender
- Escalate to the Financial Ombudsman Service if unsatisfied
The FCA has set a September deadline for deciding whether to establish a formal redress scheme, which could see payments beginning in 2025. For now, the motor finance industry faces an uncertain road ahead as it navigates what could become one of Britain's largest financial mis-selling scandals.
