FOS registers boom in car finance complaints

The Financial Ombudsman Service (FOS) received a record number of complaints about car loans in the final three months of last year, the majority of which originated from claims management companies (CMCs), latest figures show.

FOS recorded 15,956 complaints in its “hire purchase (motor)” category between October and December 2024, triple the number received in the same quarter of the previous year.

Of these, 12,500 were brought by professional representatives, FOS says.

Regarding CMCs, FOS data shows that from April to December 2024, professional representatives accounted for almost half (47%) of all the complaints it received, compared to under a quarter (21%) in the first nine months of 2023/24.

However, the uphold rate for complaints brought by professional representatives is 26% in the latest data set, compared to 36% for cases brought directly by consumers.

From 1 April, FOS will start charging professional representatives £250 to refer a case. They will receive £175 back in credit if the complaint is found in favour of the consumer they represent, reducing the charge to £75.

Professional representatives will be able to bring ten cases to the service for free each financial year. After that, every subsequent case they refer will be chargeable.

Commission concerns

The hike in complaints made car finance the most complained about product in Q3 2024/25, overtaking credit cards. In addition, FOS recorded 2,702 complaints in its “conditional sale (motor)” category.

FOS said issues about motor finance commission were behind the increase in both motor categories, with analysis showing consumers were saying:

they were not told the car dealer would get commission from the finance provider for arranging the finance;
the way someone’s car finance agreement was arranged was alleged to be unfair;
the advice, information, or recommendation their car dealer gave them was not fair because they were influenced by the commission or fee they would get from their finance provider; and/or
their car dealer didn’t give them the best interest rate available.

Last October’s Court of Appeal judgment in three cases involving commission disclosure was a trigger for the surge in car finance claims, while the Supreme Court appeal on the ruling is not scheduled to be heard until 1 April.

James Dipple-Johnstone, FOS Interim Chief Ombudsman, said: “Ongoing legal proceedings are impacting our ability to issue final decisions in these cases, but we are putting steps in place to ensure we can resolve them as quickly as possible when we have the clarity we need.”

Dipple-Johnstone highlighted the challenges posed by sudden and significant increases in complaints, which he said put the current redress framework under stress, noting this “can cause firms to struggle to effectively respond, delaying any customer compensation that is due.”

“To improve the service provided to both consumers and businesses, we are in the process of delivering a significant transformation programme – investing in new technologies, opening new team locations, and introducing new ways of working. These changes will make the organisation more resilient to significant variations in demand,” he added.

FOS, along with the Financial Conduct Authority (FCA), has recently conducted a joint Call for Input on ways to modernise the redress framework, which closed on 30 January with next steps due to be published in the first half of 2025.