If recently you’ve noticed a growing number of ‘no-win, no-fee’ legal adverts appearing on your social media feed about car finance, well there’s a good reason for that and that’s because of growing consumer dissatisfaction with the business of buying and raising finance for a set of wheels.

The Financial Ombudsman Service (Fos) recently reported that it received 11,452 complaints about car financing in the last financial year. That’s an 87% year-on-year increase.

After bank accounts and credit cards, complaints about cars obtained with finance or about car finance agreements are now the third most cited finance product at the Fos. And of those car-related complaints, 90% were issued, not by individuals, but by third parties, such as specialist claims legal firms.

Big business

Car financing is big business, offering benefits not just for many thousands of motorists who finance their wheels on agreeable terms at a price that suits their circumstances, but the rise and rise of Personal Contract Purchase and Personal Contract Hire agreements have grown to support a large sector of the UK’s SME economy underpinned by this popular solution to leasing and ownership. As data from the Finance and Leasing Association (FLA) shows, 93% of new cars are bought on finance, with around £40bn borrowed a year.

But, given these numbers, money can also be made on the fringes of the sector servicing supplementary needs, but is this ballooning in Fos complaints enough to warrant fears of the next big mis-selling scandal? Some commentators believe so.

Commissions, fees and charges

Most complaints are about the state of cars bought on finance. Also, the proportion of complaints about commissions, fees and charges has increased to 49% this financial year from 24% in the last financial year, according to the Sunday Times review of Fos data.

This last category of complaints may involve something now banned by the FCA – discretionary commission, that is, interest rates charges above and beyond what would be reasonable.

Another candidate for complaints is likely to be undisclosed commissions. Car dealers and brokers are expected to declare whether they receive a commission when agreeing on a loan with a buyer, but poor monitoring and weak enforcement of this have meant the practice is alive and well.

The new mantra from the FCA is all about doing more to prevent consumer harm, so let’s wait to see what, if anything, is done about cracking down on untoward commission disclosure.

Under the City regulator’s Consumer Duty reforms, which come into force at the end of July, these practices will, in theory, be stamped out.

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In a letter to CEOs and company directors of consumer credit lending companies, the Financial Conduct Authority recently wrote: “We expect the Consumer Duty to be a top priority for you personally. We want good outcomes for customers to be at the heart of firms’ strategies and business objectives, and leaders have a key role to play here. Firms’ Boards and senior management should embed the interests of customers into the culture and purpose of the firm.”

This change can only be an improvement on what came before, but a regulator that takes too long to investigate and act on breaches identified by the Fos – possibly through its own lack of resources – will damage consumer confidence in the car finance sector.

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