Lloyds, Other Major Auto Finance Firms Face Lawsuits for Alleged Mis-Selling

Well-known auto loan firms like Lloyds Banking Group’s Black Horse, MotoNovo, and Santander Consumer in the United Kingdom are the targets of a class action lawsuit that could become one of the country's most impactful financial compensation scandals, to the tune of  £1 billion.

These businesses are accused in the London High Court of altering interest rates and other charges on motor loans in order to include hidden commissions agreements with lenders. Millions of auto owners who purchased cards from 2015 to early 2021 may receive compensation if found successful. 

Possibly mis-sold agreements threatens finance giants

The lawsuit, which claims intentional manipulation of interest rates, has been directed toward some of the biggest names in the industry. Lloyds and its peers are potentially liable for failing to disclose commissions suspected to boost charges, which unwittingly have been paying for.

According to consumer advocates, this practice has been going on for years and may have affected millions of drivers. It is also believed to violate brokers’ fiduciary duties, or their responsibility to offer deals that work best for customers. 

Doug Taylor and law firm Scott+Scott are working together to “hold large companies to account” for costing consumers an estimated amount of £1 billion. As per the advocates, some drivers may have overpaid by at least £1,100 as a result of higher rates. 

The claimants are receiving help from the litigation funder Woodsford to sustain the legal move, which has been classified as a class-action lawsuit as it allowed all affected consumers to be covered without personally filing a complaint. 

Taylor emphasized the scale of the issue, saying that the drivers may find justice through this action, especially those unaware of these added charges.

People who used Hire Purchase (HP) agreements or Personal Contract Purchase (PCP) agreements with Black Horse, MotoNovo, or Santander Consumer between October 2015  and January 2021 are the main targets of the class action. 

It is important to note that clients who transacted with the aforementioned firms may not be able to join the claim if they signed contracts after January 2021, which was when new regulations were implemented. Clients who signed deals with other firms are also not eligible. 

Undisclosed commissions against FCA rules

The Financial Conduct Authority’s (FCA) regulations serve as the legal basis of the class action lawsuit. In 2021, the regulator outlawed the practice of imposing discretionary commission agreements (DCAs), which is said to incentivize brokers to overcharge customers. 

Many commentators have compared this case to the well-known Payment Protection Insurance (PPI) controversy, which also resulted in clients receiving compensation amounting to billions. Some opine that the motor mis-selling issue is the country’s biggest financial scandal since the PPIs. Advocates estimate the damage to motor lending firms to reach £40 billion.

Black Horse representatives assert their compliance with the current FCA requirements. According to a spokesperson, the lender has fully implemented the 2021 rules and has been prioritizing adherence to the standards. 

Meanwhile, customers who believe they have been subject to excessive charges due to DCAs are encouraged to file a complaint with their car financing provider. This is worth-noting because while the class-action lawsuit automatically includes eligible individuals, those whose cases do not fall within the given period have the option to complain directly with the company’s liquidator or administrator. 

To help individuals yet to file reports, consumer rights organizations may be able to help. The FCA also offers services for individuals who are not sure if they qualify for a loan. Moreover, legal counsel advises clients to save loan-related records, as this could speed up the claim procedure in the event that the case reaps reimbursements. 

The FCA’s investigation has been put on hold, but it is set to provide updates in May 2025, so any new grievances filed after November 2023 will face processing delays. 

Rights awareness, financial loss expected 

Aside from giving UK drivers an opportunity to recoup financial loss stemming from DCAs, the class action lawsuit and FCA action also raise awareness of the long-standing problems with ethical lending procedures and transparency. 

With the recent Court of Appeal ruling on the consolidated landmark cases involving MotoNovo and Close Brothers, customers have a precedent case to refer to when tackling mis-selling allegations. 

The court decision states that DCAs are a sign that brokers are not fulfilling their fiduciary duty, which means that they are implementing unethical practices. Overall, the ruling goes in favor of consumers. 

Any ruling set to be issued in relation to the class action lawsuit is also expected to spur extensive regulatory reform. 

While consumers may see a brighter future, the lending industry is urged to prepare for any financial blow the investigations may cause.