Car finance loan scam could lead to damages for millions of motorists

Legal action is being taken against three of the largest motor finance companies in the country for incentivizing car dealerships to sell expensive finance to buyers of second-hand cars.

If successful, this action could result in damages of £1 billion, affecting approximately one million people. In the 2010s, loan providers allowed car dealers to sell loans to motor buyers at varying interest rates.

The higher the interest rate the dealer persuaded a customer to sign up for, the more commission they received, resulting in higher profits for the loan company. The Financial Conduct Authority (FCA) banned such discretionary commission in 2021 to protect consumers.

Now, consumer advocate Doug Taylor, with the support of litigation specialist Scott+Scott, is seeking damages for borrowers who ended up with more expensive loans due to discretionary commission. The case has been filed at the Competition Appeals Tribunal as an ‘opt-out’ action, meaning all eligible borrowers will be automatically included in the claim. The claims are against loan providers Black Horse (part of Lloyds), Santander Consumer (UK), and MotoNovo Finance, which dominate the car finance market.

Car claims: The higher the interest rate a dealer got a customer to sign up to, the more commission they received

Anyone who entered into motor finance agreements with these companies between October 2015 and January 27, 2021, when the FCA ban came into effect, is covered by the claim. More details on the claim can be found here.

Consumer advocate Doug Taylor stated that this action is based on clear consumer detriment, and it presents the simplest way for consumers to receive damages.

MotoNovo, owned by Aldermore Bank, stated, “We’re aware of the legal claim and we are preparing a response.” Santander declined to comment on “actual or potential claims against us,” while Lloyds confirmed its commitment to providing clear information to customers for informed decision-making.