URGENT MINI POD: Car finance mis-selling confirmed: Will you get your money back?

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1:12Martin Lewis:Hello and welcome to this special car finance mis-selling episode of the Martin Lewis podcast. The regulator, the FCA, has just announced that 12 million agreements were mis-sold and the average payout will be£830. That's a slightly bigger average payout and a slightly lower number of agreements than we thought. So the total payout is now thought to be around£9 billion, whereas it was£11 billion previously. So to get you through this, as this is not long after the announcement, I've just done a news interview on Radio 5 with Claire McDonnell. She spoke and had a clip from the boss of the FCA first.

1:48Martin Lewis:So I'm going to play you that and I'm going to go into it with more detail just between us, podcast only afterwards. words. This is Five Live Drive with Claire McDonnell and Chris Warburton. Listen on BBC Sounds. Thanks so much for joining us. It is Five Live Drive. It's Chris and it's Claire. Good to have your company. Let's talk about this. Millions of drivers who are missold car finance between April 2007 and November 2024 will get an average payout of£829. A new scheme has been announced this afternoon by the Financial Conduct Authority, but the rules are being tightened up, so only those who were treated unfairly will be eligible.

2:30Nikhil Rafi is the chief executive of the Financial Conduct Authority. We think this is the quickest, fairest, most cost-effective way for consumers to receive compensation. It's free to use. If consumers went to court, they may well pay fees and end up getting less than the scheme. In some cases they may get more, but we don't think that is especially likely. Delighted to say we can talk now to money-saving expert Martin Lewis. Evening, Martin.

2:57Martin Lewis:Good evening. Hello. So what everybody wants to know now, if this is me, what is this new information and what do I have to do now? Well, there's a lot of nitty-gritty changes in this, but I'll keep it to the big picture. So effectively, the most important thing to understand is this is a mass redress scheme and stress on the word mass. That's because not only will firms have to compensate those people who were missold who complain, and a lot of people have complained through my own free tool on my site, we've had 3.6 million complaints by that alone, but they will also have to identify other people who were missold car finance between 2007 and 2024, contact them and tell them that they are eligible for money too.

3:42Martin Lewis:And that's the nature of masks. But the most important thing you need to understand is you want to be in the I've complained group. And there are three reasons for that. First of all, your payout be quicker, likely in 2026, not 2027. Secondly, if you haven't complained and the firm doesn't have your car finance agreement and you do, you will miss out. And third, you may have moved house or you might have moved house three or four times. You might change name if you got married and all of those things. the firm might not be able to contact you. Whereas if you complain, you can put in all of your details.

4:15Martin Lewis:So if you want to do this and you're going to use the mass redress scheme, you want to be in that complained group. And this applies. So here's the, is it me? If you got car finance, specifically PCP or HP car finance from April 2007 to November 2024, but it's not just car, it's all motor vehicles. So it's car, it's vans, it's motorbikes, it's camper vans, but it's not caravans because they don't have a motor, then you may well have been missold. And here's the bit of brain twist for everyone. One of the key definitions of misselling is they did one of three different types of misselling and they didn't declare it to you.

4:59Martin Lewis:They didn't tell you. You won't know. You can't know if you were missold. So the only way to know if you were missold right now is to complain. So to know if you've got a complaint, you have to complain. You don't have any other way. So again, I go back to my big message. Go and get, if you want to use this scheme as opposed to go to court, go and get a free complaint in Do It Now. There are free tools online, including mine, a money-saving expert, that can do this for you. So you really have to complain. If you haven't complained, Will you hear from anybody? I mean, if you haven't complained, they are supposed to, and the FCA will be pushing them hard to identify everybody who was missold and over a longer time period contact you and give you the same amount of money.

5:43Martin Lewis:But clearly there are logistical details in doing that. You know, finding car finance agreements due to data protection, they often shred them. By the way, a quick tip. If you download the Equifax app, not the paid one, set up a free basic account, It has a car finance searcher that will try and find you all your car finance agreement details back to 2007. And then you can put those into a free tool. So all of that is the right thing to do here. Just a quick note for anyone who has already complained. If you put a complaint in, you are in that complaint category. Now, you must still be in that complaint category, even if you put a complaint in and were told you didn't have a complaint.

6:23Martin Lewis:And I know it's tautologists. Let me try and explain. So until the middle of last year, the main type of complaint was what's called a discretionary commission arrangement. That's where your car finance broker could increase the interest you got and it would get more commission or the lender would increase the interest so it could pay out more commission and you weren't told it. That's called a DCA. Now, all the original letters that were coming out on the template letters were all saying, did I have a discretionary commission arrangement? If you didn't, you would have got a letter back saying you were not missold.

6:59Martin Lewis:But then last year, the Supreme Court, effectively, the FCA has characterised two other forms of misselling. One is contractual ties. That's where you were given car finance and you effectively thought you were going to get the best deal from a panel of lenders, but they didn't take you to a panel of lenders. They just had a tied lender who always gave you your finance, or they had a lender who had first call. And the second, if the level of commission was too high. So there are three types of missetting. Most people who've been told they don't have a complaint have only been told they don't have a DCA complaint.

7:32Martin Lewis:But the rule is, if you put in a complaint, then the lenders will now have to examine you for the other two categories as well, without you doing anything more. So if you put in a complaint, and it's been acknowledged, you're in the complaint camp, which is the camp I want you to be in, because that means everything will be done quicker and easier. And of course, if your address changes or your name changes since, do notify them. OK, right. So get the complaint in. It is the overriding advice. What do you make to the Financial Conduct Authority's statement? Obviously, the range and scope is smaller than we thought it would be.

8:07What do you make to the parameters of this payout?

8:10Martin Lewis:There's some good and bad here. One of the things I've been lobbying about is the size of the payout. I think it's pretty fair to say if you went to court based on what the Supreme Court did last year, you would get a bigger payout than under this mass redress scheme. But of course, far fewer people would get it. It's more difficult to do. And you'd have to pay someone 30 percent usually to do it. So we've been lobbying, especially over the interest rate. They have effectively increased the compensatory interest rate. That's one of the main reasons the payout is now averaging£830, not£700. There's also slightly more money for older agreements.

8:44Martin Lewis:the things they've taken out of scope there is a level of fairness here effectively they've taken out of scope people who would have got compensation that put them in a better position they would have been in the best position in the marketplace i am digging in the details at the moment to exactly what that means so i don't want to give you a fine judgment the most interesting thing i've seen so far though and this is fascinating because you know you know many people are seeing this as the end game there'll now be a three-month implementation period then you'll start getting your letters from and the bank's telling you your own money.

9:13Martin Lewis:But there is a concern over judicial review and over finance firms especially taking the regulator to court saying the scheme is unfair. And the biggest concern is over cases between 2007 and 2014, which they are arguing should not be in scope. And the regulator has put them in scope, so you can complain. And what it's done technically when you read this, it's actually split this into two identical schemes. One scheme for 2007 to 2014 agreements, and it's the date they start that counts. One scheme for 2014 to 2024 agreements. The reason it has split that in two is if there is a judicial review, it's far more likely to be on the earlier ones.

9:54Martin Lewis:So a judicial review would mean those earlier cases would go on hold. But by splitting it, they could continue with the scheme for the 2014 to 2024 cases without putting them on hold. because technically now there are two car finance reclaiming schemes on a different date. So, you know, all that type of detail is what I'm in the middle of reading through now. It's only been an hour and my team and I were absolutely cracking down and updating our templates. But there's a lot of interesting stuff on this. Can I throw some questions at you from our listeners, Martin? And there's quite a few of them.

10:25So we'll try and get through as many as we can. Tony says this question for Martin, please. Tony from Halifax. I've been told by Land Rover that they paid two discretionary commissions at values of 4 ,000 in total to my dealer. Will I be entitled to the full 4 ,000 back or will it be a percentage, says Tony?

10:44Martin Lewis:It's way more complicated. They have a balancing calculation. It depends on the year that you got it. You will be entitled to some money back. I think it's very unlikely you'll be entitled to the 4 ,000 pounds back. It's about prevailing market rates of interest and the percentage of the commission that comes out. And it's called a hybrid calculation. I would think, no, that's large. I'd probably be thinking you'll be somewhere around the£1 ,000 mark, but that's pure guesswork. You know, there's so many different factors in here. I can't answer it. OK, Sophie says, I previously instructed a company to look into a potential claim as I didn't realise I could do it myself.

11:19What do I do now? Do I carry on with a claim with the missold finance expert or can she back out?

11:27Martin Lewis:So one of the things I'm frustrated about is I don't believe the regulator has given strong enough guidance on this. Claims firms, some of them are actually regulated by the FCA, the same regulator that is doing car finance. Some of them are regulated by the Solicitor's Regulatory Authority. We've been pushing them very hard. And all they say is, if you want to cancel with a claims firm, the charges that they give you for cancelling must be reasonable. And when you ask what reasonable is, they say reasonable, which is obviously a bit circular. So you need to talk to the firm about what it would cost you to cancel and when you would have to pay it.

12:03Martin Lewis:Because, of course, these payouts won't be coming later in the year. But if you cancel, some of them might want an upfront fee now before you know whether you're getting paid or not. Now, if you believe it isn't reasonable, you could not cancel, but make a formal complaint and then take them to either the solicitor's regulatory authority, if they regulate them, or the claims ombudsman, which is part of the financial ombudsman, if they regulate them. But by the complexity of my answer, you'll hear me saying it isn't as simple as it should be. Yeah, yeah. Listen, there's so many. Let's just maybe try and squeeze one more in.

12:35Can I give one more?

12:36Martin Lewis:Just one more thing. Oh, go on. Someone mentioned someone who passed away earlier. Just a really important note that people who have passed away, their finance is in scope. So if someone was missold and has passed away, the primary beneficiary or the executor, and you will need to prove it, can take up that complaint and will be owed money. One of my concerns that I have not had answered by the regulator yet is how will firms identify somebody who's passed away's case of misselling and contact? So I think if somebody has passed away, you really, really want to be in that complained camp, primary beneficiary or executor of the will.

13:13Martin Lewis:You'll need to prove it and you will be owed money. And other things, if you paid the car off, you're owed money. You know, if you paid it off early, if you were charged some interest, you may be owed money. Of course, you're only owed if you were missold. And it's important for me to say 35 percent of those car finance agreements, PCP or HP between 2007 and 2024 are thought to have been missold, which does, of course, mean that, you know, 65 % weren't missold. So I was saying complain so you can find out. But don't assume just because you had car finance, you were missold. And a really quick one finally from John, who says, when I purchased my used Toyota from a dealership, I actually asked if I could have their finance.

13:54Can I make a claim? Does it matter if you actually asked it or is it just all about the transparency that they had with you?

14:00Martin Lewis:It's about the transparency that they had with you, generally. You asked for their finance. Most people would have been because they thought that was the best, but it depends. So there's two levels, three types of misselling. We're going to turn this into a podcast where we'll get out soon and I'll explain them in detail when we do that, the three types of misselling. And then you have to be not disclosed if they did one of those three types. So it's sort of a two-part question. Brilliant. Thank you as ever, Martin. Really appreciate you taking the time to come on and answer the listeners' questions.

14:27Have a great evening.

14:28Martin Lewis:OK, so that's me on Five Live, rush through, news interview. Now I want to give you a little bit more, but a caveat before I start. We're only just over an hour after the FCA did its announcement. There are a lot of documents and I've got lots of questions. So please give me a bit of wriggle room. I haven't dotted every I and crossed every T on this, but I hope most of what I say will be spot on. Let's start by explaining the three different types of misselling. The biggest one is discretionary commission arrangements. That's the majority of agreements. And of course, you could have been missold in more than one way on an agreement.

15:03Martin Lewis:So the total number of agreements that were missold is lower than if you added up each type of misselling. But I digress. Let's get on with what it is. Discretionary commission arrangements is where the lender would pay a broker or dealer more commission if it increased the interest rate. Simple as that. And you weren't told. Remember that point? All of these are about it wasn't disclosed to you. The next one is unfairly high commission. And that is defined as 39 % or more of the cost of credit, or interest in most cases, was made up of commission. Now, interestingly, before today, that was 35%.

15:40Martin Lewis:So that criteria has gone up a little bit. And 10%, over 10 % of the total cost of the loan was commission. It has to be both. the final category and this one has had quite a big change is contractual ties now that is where when you went to get your car finance the broker intimated to you that you were going or you thought there would be a panel of lenders and you know it'd be giving you the best deal but in reality there was only either one lender or one lender had first call not because it was right for you but because it was right for them on your custom. And that's called a contractual tie.

16:17Martin Lewis:And those are the three different types of misselling. Now, one of the big changes today is that contractual ties, if it was with the obvious finance firm, so what do I mean by that? You're with a Volkswagen dealer and it was Volkswagen Finance. You're with a Toyota dealer and it was Toyota Finance. You're with a Ford dealer and it was Ford Finance. You get the point. They have effectively been excluded from contractual tie misselling. You might still be DCA missold, you might still be unfairly high commission missold, but in practice you won't be contractual tied because the argument is it was pretty obvious they were going to give you the finance of that dealer.

16:54Martin Lewis:That is one of the big changes today and that's the main reason the number of agreements that were missold has dropped. Next point, I've talked about the fact that you should complain. What many people ask me is I've already complained, what do I do? so in most cases you're done as long as you want to go through the fca route and not go through the court route you don't have to do anything now the obvious case is you put in a complaint about a discretionary commission agreement and it told you you had a dca well then you're waiting if you put in a case about a discretionary commission arrangement and it said you don't have a complaint well actually as far as we know at the moment you still don't need to do anything That's because most people who put in those complaints put them in before the Supreme Court ruling last year, which is where we got the extra two types of misselling, contractual ties and unfairly high commission.

17:49Martin Lewis:And what we think the regulator is saying is if you put in a complaint on DCAs, even if you didn't have a DCA, then lenders will now have to look at your complaint for the other two types of misselling as well. In fact, we know they will. What I'm just double checking is that they haven't changed the fact that you will count as the I've complained group, so that you are already opted in, opted out. You would have to opt out. You're in it by default. I don't think it has changed it, but I am double checking that. That's one of the things. So I'll put something out if I'm wrong on that. So pretty sure if you put in a complaint, as long as they've acknowledged complaint, whatever your circumstance, you're in that complaint category.

18:30Martin Lewis:Quick word on interest rates. I'm pleased on this because this is one of the things I was lobbying on that I thought it wasn't fair. Until today, the compensatory interest. So this isn't the interest you paid. This is the compensation interest you will get from, you know, having been missold 10 years ago and waiting to get your money back or 20 years ago. Until today, it was the Bank of England base rate plus 1%, which is very low. And it's not compounded. So it's that a flat rate each year. So it's the Bank of England base rate for the year each year. Now it's the Bank of England base rate plus 1%, so the same, but with a minimum 3 % for the year.

19:08Martin Lewis:So yeah, you would be better off in every year from 2009 to 2022 under the minimum 3%. So that will actually is one of the reasons why the level of payout is higher. And then the final category, I'm not going to do too many on these because I'm still working through them, is exclusions. So the big exclusion is the one I've already mentioned. contractual ties to a lender who are the obvious lender, you know, the finance firm of the dealership. But there are some others for people who had very low levels of commission. You won't get your money back. Or if your commission, you'd get back more money than would put you in a better place than you would have been in an open market.

19:47Martin Lewis:You won't get money back. And all of these have reduced the number of people getting commission slightly. I will be working through all this in more detail. well, if you haven't put a complaint in, put a complaint in. But hopefully this is a decent enough summary an hour afterwards, after a very big document that it gives you an idea of what's going on. But I'll be putting more stuff out of it on my other channels as well. Thank you very much for listening. That's it for this special edition of the podcast. Now, just as I thought I'd finished recording that, I've got a message from the regulator saying that if you have been rejected for a discretionary commission arrangement, you've had a full rejection, while they will have to look at your complaint, you will be on the longer time span.

20:31Martin Lewis:That's the 2027 payouts, not the 2026 payouts. So if you have been rejected for a DCA, I would put in a new complaint asking now so that you're in the quicker scheme. And I'll be working through that over the next hour or so to work out exactly what you do do.