SANTANDER is poised to compensate “thousands of customers” after a landmark ruling.
The banking giant announced this morning that it had allocated £295 million to cover potential payouts for those who were missold car finance.
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The Financial Conduct Authority (FCA) began an investigation earlier this year into whether motorists were unknowingly overcharged when they took out car loans.
The investigation focuses on past practices where banks allowed car dealerships and brokers to set their own interest rates on loans.
Under this discretionary commission arrangement (DCA), the higher the interest rate charged, the more commission the dealer or broker earned.
However, many customers were unaware of this practice.
As a result, people who financed the purchase of a car, motorbike, or van before January 28, 2021 (when DCA was banned), may be owed significant sums of money.
Santander had already decided to allocate funds for compensation despite disagreeing with a pivotal Court of Appeal ruling last month.
The judgment set a precedent for the wider motor finance industry by ruling that any dealers receiving commission from lenders must ensure their customers are fully informed about the arrangement.
Santander said the ruling “set a higher bar for the disclosure of and consent to the existence, nature, and amount of commission paid to dealers than that required by current FCA rules, or regulatory requirements in force at the time of the cases in question”.
Santander’s third-quarter profits have plummeted following the bank’s decision to allocate substantial funds for customer compensation.
The high street lender reported pre-tax profits of £143 million for the three months ending in September.
This is a nearly 75% decrease from the £558 million earned during the same period last year and a significant drop from the £413 million posted in the previous three months.
The FCA estimates that on a typical £10,000 motor finance agreement, higher broker commissions DCA could result in customers paying an additional £1,100 in interest charges over the four-year term of their loan.
Martin Lewis suggests payouts of around this figure could be given to customers if it is decided that they are due compensation.
Lloyds Banking Group has already set aside £450million to cover the cost of potential fines.
Meanwhile, Close Brothers decided not to pay investors dividends and took action to “shore up” its balance sheet by up to £ 400 million.
What is the FCA investigating and who is eligible for compensation?
What is being investigated?
The FCA announced in January that it would investigate allegations of “widespread misconduct” related to discretionary commission agreements (DCAs) on car loans.
When you buy a car on finance, you are effectively loaned the value of the car while you pay it off.
These loans have interest payments charged on top of them and are often organised on behalf of lenders by brokers – usually the finance arm of a dealership.
These brokers earn money in the form of commission – a percentage of the interest payments on the loan.
DCAs allowed brokers to, to a certain extent, increase the interest rate on a loan, which in turn increased the amount of commission they received.
The practice was banned by the FCA in 2021.
Who is eligible for compensation?
The FCA estimates that around 40% of car deals may have been affected before 2021.
There are two criteria you must meet to have a chance at receiving compensation.
First, you must be complaining about a finance deal on a motor vehicle (including cars, vans, motorbikes, and motorhomes) that was agreed upon before January 28, 2021.
Second, you must have bought the vehicle through a mechanism like Personal Contract Purchase (PCP) or Hire Purchase (HP), which make up the majority of finance deals and mean you own the vehicle at the end of the agreement.
Drivers who leased a car through a Personal Contract Hire, where you give the car back at the end of the lease, are not eligible.
PROGRESS OF FCA INVESTIGATION
The FCA had initially planned to publish the results of its investigation in September, but this has now been postponed to May next year.
Additionally, firms now have until December 4, 2025, to respond to customer complaints.
It’s important to note that the December 4 deadline is specifically for firms to respond to complaints.
Customers are still encouraged to file their complaints before this date, and in some cases, there are specific time limits for doing so.
You can find more information about any time limits the regulator sets by visiting fca.org.uk/consumers/car-finance-complaints.
HOW TO CLAIM
Consumer finance website MoneySavingExpert.com offers an email template to help you complain to your finance provider.
You can download this by visiting moneysavingexpert.com/reclaim/reclaim-car-finance.
Alternatively, you can complain directly without using the template.
It’s crucial for anyone who took out car finance to file a claim, even if a previous claim was denied.
In your complaint, ask whether you were overcharged due to your broker receiving a commission and request the company to rectify this if it occurred.
If you’re unsatisfied with the company’s response, you can escalate your complaint to the Financial Ombudsman Service (FOS) at no cost.
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You have until July 29, 2026, or up to 15 months from the date of the company’s final response letter, whichever is longer.
Avoid using a claims management firm, as they will take a portion of any successful claim.
USING THE FINANCIAL OMBUDSMAN SERVICE
IF your lender does not respond to your complaint within eight weeks, or if you are unhappy with their response or do not hear back, contact the Financial Ombudsman Service immediately.
It is an independent body that will consider the evidence you present and make a fair decision about the action a financial service provider should take.
The FOS can usually get involved 15 days after you’ve raised concerns with a lender.
To get in touch, you need to fill out a form, which you can find by visiting financial-ombudsman.org.uk/make-complaint.
If you’d prefer to talk it through with someone, the FOS can help you do this by calling 0800 023 4567.
When you get in touch, you need to have the following details to hand:
- Some basic information, including your name and address
- What the problem is, and how you want things put right
- Details such as the policy number or account number that your complaint relates to
The FOS will then look at the evidence provided by both sides, and it may contact you for more information.
Once it’s made a decision, it’ll write to you, and if it agrees with your complaint, it’ll say what your lender must do to make things right.
