£1 Billion Car Finance Class Action: Black Horse, MotoNovo, and Santander Under Legal Scrutiny

Three prominent lenders—Black Horse (owned by Lloyds Banking Group), Santander UK, and MotoNovo Finance—face a class-action lawsuit that could yield settlements close to £1 billion, marking a significant development in the UK car finance sector. Based on the lawsuit, these lenders helped car dealers and brokers reach agreements that increased loan interest rates without the consumers' knowledge between 2015 and 2021. In exchange, these intermediaries received substantial commissions, benefiting from the higher rates paid by the borrowers.

If successful, this class action lawsuit could set a precedent for Black Horse Finance claims and pave the way for similar cases against MotoNovo and Santander. It is the most recent step in a growing movement for consumer rights, and car finance claims, particularly after the Financial Conduct Authority's 2021 "Discretionary Commission Arrangement (DCA)" ban.

Key Takeaway

• UK’s leading car finance companies—Black Horse, MotoNovo, and Santander—are facing a potential £1 billion lawsuit for allegedly misseling car finance agreements and anti-competitive practices.
• Black Horse, MotoNovo, and Santander represent over half of the UK car finance industry. From the approximately £1 billion lawsuit, Black Horse faces £624 million, £209 million for MotoNovo, and £166 million for Santander.
• The practice of ‘Discretionary Commission Arrangement’ contributes a major part of this lawsuit. Through DCA, consumers were steered to agree to higher interest rates, which incentivised the dealers.
• Approximately 1 million consumers are entitled to compensation for the financial losses incurred because of the unfair and transparent lending practices of the car financial companies.

The Cause of the Potential £1 Billion Compensation

The ongoing £1 billion legal battle of Black Horse, MotoNovo, and Santander can be traced to their car finance commission practices, specifically in the agreements made from 2015 to 2021, when they could still apply the ‘Discretionary Commission Arrangement.’ During this period, these three companies seemed to have most of the control in the car finance industry, and an alleged anti-competitive network was agreed upon between the car dealers and these car finance providers. As a result, the Financial Ombudsman Service (FOS) recorded a rise in the misselling of cars based on consumer complaints.

Car Finance Lending Practices Under Scrutiny

The misselling of cars involved practices such as undisclosed, inflated interest rates designed for the benefit of car dealers and car finance providers at the expense of  consumers. Doug Taylor, a consumer advocate leading this lawsuit, said, “We believe that Black Horse Ltd. (Lloyds Banking Group), MotoNovo, and Santander took advantage of their customers. Affected consumers unknowingly paid more for their car loans because of the way these companies incentivised dealers.”

Taylor means that the DCA was widely used in the car finance industry until the Financial Conduct Authority (FCA) banned it in January 2021. The FCA's investigation into the finance regulations showed that the DCA led consumers to pay more than necessary, even if better financing agreements were available. The FCA estimated that the practice cost consumers around £165 million annually. According to the FCA, “The practice of ‘discretionary commissions’ was banned... after investigations led to concerns that the model wasn’t in the best interests of consumers and pushed them into poor deals, even when better deals were available.”

Breakdown of the £1 billion Lawsuit

Black Horse, MotoNovo, and Santander represent over half of the UK car finance industry. From the approximately £1 billion lawsuit, Black Horse faces £624 million, £209 million for MotoNovo, and £166 million for Santander.

Despite this pending lawsuit, Black Horse still believes they are fair and transparent with their consumers. “We are committed to ensuring customers have clear and transparent information so they can make informed decisions about the products they choose,” they said.

Further, MotoNovo is more than willing to address any complaints related to the lawsuit. They said, "We’re aware of a legal claim that has been brought against us and we are preparing our response."

On the other hand, Santander UK has declined to comment on the issue.

Implications for Affected Borrowers 

The lawsuit aims to make the major finance companies and all finance companies that were found to have taken advantage of the consumers accountable. All affected consumers are encouraged to check the dates when they purchased the car to see if they are qualified for compensation. Consumers who bought from 2015 to 2021 through car finance are entitled to compensation, for most likely they were overcharged because of the inflated interest rates.

"With this legal action, I am standing up for people across the UK who have been affected by the actions of these companies, seeking justice and compensation for the financial losses they have suffered." — Doug Taylor, consumer advocate.  

Broader Impact on the Car Finance Industry

The results of the class action lawsuit could set a precedent for policy changes, making the regulations in the car finance sector even stricter. The FCA’s ruling could potentially reshape car finance industry practices and how commissions are handled in the car finance agreements. 

One possible change would be heightened regulatory oversight in the structure of commissions in the car finance agreements. Future policies might require clear and transparent disclosure of any dealer commission since the £1 billion lawsuit is more about the dealer commissions that resulted in charging the consumers higher interest rates to incentivise the dealers. The elimination of commission-based incentives in car finance agreements might be possible as well. These changes could help ensure that dealers prioritise customers’ best interests rather than profiting from high-interest deals. 

Moreover, if the court uncovers the widespread misconduct of the car financial companies, it may push consumer protection beyond discretionary commission arrangements. For instance, there could be broader requirements for transparent lending practices, enhanced penalties for non-compliance, and regular audits to verify fair practices. Ultimately, this case could bring about a reformed landscape in which consumers face fewer hidden fees and have greater access to fair and transparent financing options, reshaping trust and ethics in the car finance sector.

Possible Legal Outcomes and Precedents

The court rulings on this case could set a legal precedent for future claims in the car finance sector, particularly on commissions and consumer rights. To ensure consumer success in this legal battle, legal funding is crucial, and consumers need to have resources to challenge Black Horse Ltd, MotoNovo, and Santander— three largest car finance companies in the UK. 

As Charlie Morris, Woodsford mentioned, "Litigation finance is fundamental to actions of this kind; it levels the playing field and provides consumers with equality of arms and affords access to justice so that companies like Black Horse Ltd., MotoNovo, and Santander can be held to account for their misconduct."

The success of this case could further encourage litigation finance companies to support other consumer rights cases, creating a more balanced landscape where consumers have the backing to challenge corporations on issues like hidden fees, mis-selling, and inflated interest rates. This shift could also prompt corporations to preemptively adjust their practices to avoid future legal risks, further protecting consumers and enhancing transparency across the sector.

What Borrowers Can Do Now

Borrowers are encouraged to check on their car finance agreement, particularly if they bought used cars from 2015 to 2021. They may be eligible to file for compensation claims because consumers who purchased their vehicles during these years were most likely steered to agree to pay higher interest rates than what they needed to pay. Consumers should seek legal counsel or join the ongoing class action. 

"Anyone who entered into a car finance agreement with Black Horse (Lloyds Banking Group), MotoNovo Finance, or Santander to purchase a used car between 01 October 2015 and 27 January 2021. Up to one million consumers may be affected," said Alex Niel from The Daily Telegraph. 

Borrowers can check these links if they plan to file financial claims against the three major car financial companies - 

Black Horse Ltd. -  https://www.blackhorse.co.uk/help/complaints/motor-commission-complaints.html

MotoNovo - https://customer.motonovofinance.com/our-finance-products/insurance

Santander UK - https://www.santander.co.uk/assets/s3fs-public/documents/chargebacks-and-disputed-transactions.pdf

The class action against Black Horse, MotoNovo, and Santander highlights significant issues regarding transparency and fairness within the car finance industry. Consumers who were overcharged due to anti-competitive practices are now fighting for justice and compensation, potentially leading to major reforms in the industry.