Is my Car Finance Valid? Common Eligibility Criteria Explained

“Is my car finance claim eligible for compensation?” This is one of the most frequently asked questions by consumers, as they have seen reports about the car finance commission complaints received by the Financial Service Ombudsman. To ascertain their car finance claim eligibility, consumers must understand if a discretionary commission arrangement (DCA) was applied in their car finance agreement. In addition, a recent update from the FCA added the car finance agreements with fixed-rate commissions to the probe. If they believe that their broker made them agree with an unfair and untransparent car finance deal, most likely, they will be entitled to a car finance claim compensation.

Common mis-selling in car finance agreements

While consumers hope to lessen the financial burden as they achieve their goal of buying their dream car, they seek assistance from financial service providers that could give them a payment plan structured so that these consumers will pay a reasonable amount every month without the need to pay the full price of the vehicle upon purchase. However, reports show that these financial service providers took advantage of many consumers to agree to unfair and untransparent car finance agreements.

Here are the most common mis-selling practices that consumers complained about.

• Hidden fees that were not disclosed during the signing of the car finance agreement.
• Car dealers insufficiently discussed the financial risks involved in the agreement, such as balloon payments or penalties for early termination.
• Overstating the worth of the vehicle to increase loan amounts and potential commission to be received by the dealers.
• Car dealers failed to assess the consumers' ability to pay the monthly amortisation of the vehicle as part of the agreement.

Case studies of the car finance claims by the FOS

1. In May 2023, Mrs. A became involved in a hire purchase agreement with Northridge Finance for a used car, trading her existing car with outstanding finance of £6,520. What happened next is the dealership failed to clear this outstanding finance, directing Mrs. A to make additional reimbursement to the existing finance company, which she couldn’t sustain alongside her new payments to Northridge.

Mrs. A complained to Northridge, who denied liability, prompting her to make an advanced move. The investigator found Northridge accountable under section 56 of the Consumer Credit Act 1974 and the Forthright Finance Ltd v Ingate (1997) case. This concludes that Northridge should clear the outstanding finance, refund Mrs. A for the additional payments, and compensate her £750 for inconvenience and distress she has gone through. 

The Ombudsman upheld this ruling, giving directions to Northridge to clear the outstanding balance, refund the payment with interest, and pay the compensation. 

2. Mrs. R obtained a used car via a hire purchase agreement with Northridge Finance in March 2023. The car, which cost approximately £34,300, had multiple problems with the engine management light (EML) coming on shortly after sale. Multiple attempts were done by the dealership to repair the car, yet the EML continued to display, leading Mrs. R to feel unsafe using the vehicle. She sought to reject it and receive a refund. 

The ombudsman assessed the case and ruled that the car was unsatisfactory per the Consumer Rights Act 2015. The ombudsman upheld Mrs. R’s grievance and demanded Northridge Finance to:

• End the finance agreement with no further payments from Mrs. R. ​
• Collect the car at no cost to Mrs. R. ​
• Refund Mrs. R's deposit/part exchange contribution of £55.60. ​
• Refund all payments made under the finance agreement from September 2023 to the settlement date, plus 8% simple yearly interest. ​
• Pay Mrs. R £250 for distress and inconvenience. ​
• Remove any adverse information related to the finance agreement from Mrs. R's credit file. ​
  

3. Mr. P bought a used car, yet Mega Car Shop Ltd (MCS) failed to clear the existing finance on his part-exchanged car, leaving him responsible for payments to both finance companies. MCS did not respond to his complaints, causing Mr. P financial strain. The ombudsman ruled that MCS should clear the outstanding finance with the previous provider, compensate Mr. P £300 for the inconvenience, and work with the finance company to remove any adverse credit file entries. The decision also included an 8% interest refund if applicable.

Common Eligibility Criteria for Car Finance Claims  

            1. Misrepresentation of costs in the agreements

Consumers may be qualified to file a complaint if the dealer fails in having transparency in disclosing the total cost of the agreement, including the interest rates, fees, and penalties. Misrepresentation can include inflated interest rates, hidden administrative fees, and overstating the car’s total value to arrive on a higher loan amount. 

            2. Insufficient explanation of the terms in the agreements

Car dealers must thoroughly discuss the terms in the agreements, which should include the important features of the agreement, such as the balloon payments for the PCPs, the penalties for early termination, and the depreciation clauses for leased vehicles.

            3. Affordability checks were disregarded

Car dealers must adequately evaluate the consumers’ financial capability to commit in paying the monthly amortisation settled in the agreement. Consumers may be eligible to file a car finance claim if their monthly income and expenses were not properly verified. It is also the case if their credit history was bypassed, or their application for car finance was still approved despite clear affordability discrepancies. 

            4. Unclear commission disclosure

Car dealers are required to disclose the potential commission they will receive from the agreement, as this has a direct impact on consumers' monthly payments.

How to assess car finance eligibility?

The Financial Conduct Authority estimated that 95% of car finance agreements had a commission model, and 40% had applied the ‘discretionary commission arrangement,’ which the FCA banned in 2021.

Consumers can check the following criteria to determine whether they are eligible for a car finance claim.

1. They signed a car finance agreement for a car, van, campervan, or motorbike before January 28, 2021, and possibly after April 2007.
2. The vehicle in the car finance agreement is mainly for personal use, such as commuting. On the other hand, vehicles financed through a business agreement can still be eligible if they are mainly used for personal purposes, as long as the finance agreement is under £25,000.
3. Car finance agreement under Personal Contract Purchase (PCP) and Hire Purchase (HP).
4. Family members of deceased consumers are eligible to process the claims as long as they can provide the necessary documentary support that they are authorised to do so.

How to file a car finance claim

The Financial Ombudsman Service has outlined the steps to guide consumers in processing their car finance claims.

1. The consumer must inform their car finance service provider. They need to contact and inform them that they are unhappy with the agreement and want to file a complaint. This will give their service the time to review their agreement and check on possible resolutions they can offer consumers.

2. Car finance service providers must respond to the consumer within eight weeks or up to 45 weeks if the FCA’s temporary complaint-handling rules cover the complaint. 

3. If the car finance service provider displays failure to respond or the consumer is unsatisfied with their resolution, they can file a grievance to the FOS. 

4. When consumers file complaints with the FOS, they are asked to render necessary documents to strengthen their claims. 

5. The FOS will assign the complaint to a case handler who is responsible for updating the consumer on the progress of the complaint.

6. For the FOS to fairly investigate the complaint, they might ask the consumers about the data such as the car finance agreement and any other information such as - 

• the initial disclosure document
• pre-contract information
• adequate explanation documents
• Standard European consumer credit information
• Any other information provided by the car finance service provider to the consumer

7. The FOS will make its decision and inform the consumer if they were treated unfairly, with a corresponding explanation of why it made such a decision.

The FOS provides options, particularly for those who want to process their complaints independently, without the help of claims management companies (CMCs) or solicitors. If consumers need help processing their complaints, they can check this page: https://www.reclaim247.co.uk/.

Determining the validity of the car finance agreement could save consumers from unnecessary financial burdens and potentially recover thousands of pounds. Consumers can confidently navigate the claims process by understanding the eligibility criteria, reviewing the agreement, and seeking professional guidance.