FCA is on a crusade to put the brakes on rip-off car sales

Few things make my heart sink quite like the words “the next PPI scandal”. We all know what follows: years of advertising and cold calls from claims management companies after a new goldmine.

Car finance is the latest crusade. Legal battles loom over so-called “discretionary commission payments” – essentially, secret bungs from lenders to car dealers if they steered buyers towards higher interest rates. Solicitors for three customers argued the very existence of this commission broke the law. Two of those cases were ultimately rejected by the supreme court, but the uproar was loud enough to push the Financial Conduct Authority (FCA) into setting up a redress scheme for up to 14m drivers. The details are due this month.

It’s not right that people were kept in the dark about these commissions, nor that it made their borrowing more expensive. But this is not PPI, a product aggressively sold to people who had simply popped into their bank to open an account.

Car finance, for all its flaws, has enabled millions to drive new (often high-end) cars without finding the cash upfront. Most buyers were perfectly happy, rolling off the forecourt in a shiny motor at a monthly cost they could manage. Realistically, how many would have done anything differently, even with full visibility of the commission structure?

Some might have negotiated their interest rate or gone elsewhere. Some might have concluded that car finance is a bit of a mug’s game, turning a basic means of transport into a competitive status symbol that locks you into debt. But I suspect plenty would still have chosen the flexibility and apparent affordability of car finance over the unglamorous slog of saving for a second-hand runaround.

Still, a line must be drawn. By launching its own compensation scheme, the FCA is recognising that people deserve money back, while also trying to prevent a free-for-all for lawyers and reduce pressure on the already overstretched ombudsman and courts.

That won’t stop claims firms scrambling to sign up customers. The FCA has already warned about people being represented multiple times and being charged “unfair” fees to leave. Social media is awash with ads promising huge payouts, even though the FCA has said the average refund will be around £700. People are being bombarded with texts and calls after handing over their details, with fraudsters inevitably joining in.

The FCA says its scheme will be free, fair and far quicker than going through the courts. It needs to be, or it will drift into a compensation circus that leaves us blocking unknown numbers before breakfast.

Photograph: PR Handout