Car finance complaints mount up

Plans to introduce higher fees for claim management companies (CMCs) bringing consumer cases to the Financial Ombudsman Service (FOS) have moved a step closer, in a bid to deter frivolous applications and improve outcomes for consumers, at the same time as some predictions suggest the recent Court of Appeal ruling on commission disclosure opens the door for a surge in compensation claims against lenders.

Latest data from FOS shows that overall financial claims have jumped 40% in a year, reaching a total of 133,019 complaints between 1 January and 30 June 2024 compared to 93,114 complaints in the same period in 2023.

Banking and credit continues to be the most complained about sector and is the only sector that saw a year-on-year increase in complaints.

In the first six months of 2024, consumers lodged 101,031 banking and credit complaints, over half of which were brought by professional representatives, compared with just a quarter the previous year.

Earlier this year FOS outlined proposals to start charging CMCs and other professional representatives a fee of £250 for every case they bring, which would be lowered to £75 if it rules in their favour. Individual consumers would still have free access.

The Financial Times has reported seeing a letter from City minister Tulip Siddiq to firms in which she states that the government backs this development, citing concerns about companies submitting “significant numbers of poorly evidenced or template responses to the FOS with no financial disincentive for doing so”. There has also been criticism that CMCs do not pass on a sufficient proportion of any redress to their clients.

FOS has yet to state its position, saying the move will require new legislation if it is to proceed. However, the issue has acquired some urgency in the wake of the Court of Appeal’s surprise judgment.

Darren Smith, managing director of Courmacs Legal, told the Times that lenders could face “30 million to 40 million” claims over mis-sold car finance, suggesting the problem could reach the scale of the PPI mis-selling issue in the 1990s which saw some 32 million claims.

Courmacs says it is already handling around 1.4 million claims, but predicts an upsurge in interest from car buyers because the Court of Appeal findings are wider than the focus of the FCA inquiry into discretionary commission arrangements, which kick-started the claims process.

Class action

In a further development, the UK is set to see a rise in the sort of class-action lawsuits which were previously the preserve of the US consumer sector, prompted by the 2015 Consumer Rights Act, which allows consumers and businesses to pursue collective lawsuits over breaches of competition law. 

Previously, the only way to raise a UK class action was by using some form of “opt-in” procedure, where each claimant had to proactively chose to be involved. By contrast, an “opt-out” procedure is one in which a claim is brought on behalf of the entire class of potential claimants without the need for them to proactively choose to participate.

If the representative claimant successfully persuades the court or tribunal in which the claim is brought to allow the claim to proceed as a class action, and that action is ultimately successful, the remedy awarded will be available to all potential claimants (other than any who proactively chose to opt-out). 

Research by law firm CMS found such mass actions are on the increase, with 133 claims filed in 2023 across Europe. The UK, the Netherlands, Germany and Portugal comprise 78% of all European class actions between them, and the UK posted the highest figures, with claimed quantum now exceeding €145bn.

UK competition class actions encompassed over 500 million class members filed at the end of 2023, CMS says.

Some commentators have welcomed the move, suggesting that in some cases opt out class actions are prompted by specialist consumer rights groups or activists in lieu of/in parallel with regulators – either so that they can achieve redress more promptly than by waiting for infringement decisions, or to take action that they feel regulators should have taken

An alternative view suggests some opt out class actions are actually driven by CMCs or litigation groups, and that while they may benefit financially if such an action is successful, the gains will not necessarily trickle down to those individuals affected.

Even before the Court of Appeal judgment, car buyers have already registered 2.4 million complaints using Money Saving Expert’s online tool which was launched after the FCA opened its review of motor finance. Combined with the rush of activity from CMCs after the Court of Appeal ruling, and numbers of complaints are likely to soar.

PPI ended up costing Lloyds £22 billion by 2020 and banks overall about £50 billion in fines and compensation. Lloyds is one of a number of lenders who have made provision for motor finance claims in recent financial reporting, with analysts suggesting its compensation bill could hit £3.2bn.

“Co-operation is key and that’s why we’ve invited Stephen Haddrill, director general of the FLA, and Jim Higginbotham, CEO of the NACFB to our conference in London on November 26th. And in light of the verdict we will be redesigning the agenda to address the big topics that now need to be considered

“We expect that the implications of the judgment, and the likely financial impact on lenders’ bottom line, will be a big focus of discussions between all attendees.”

Asset Finance Connect looks forward to seeing you at this must attend event. You can find ticket information directly on the conference website or from Louise Clavey at louiseclavey@assetfinanceconnect.com