MILLIONS of drivers are being warned about using claims management and law firms to chase car finance compensation.
Around 14million motorists could be due £700 each on average — but 3.7million people may miss out on the full amount because the company fighting their case could take a cut.
Millions of drivers are being warned about using claims management and law firms to chase car finance compensation[/caption]
If you turn out to be eligible for a payout, there is a way to ensure you are top of the queue.
James Flanders explains what is happening, whether you are due cash back and how to claim.
Earlier this week, the Financial Conduct Authority (FCA) announced plans for an £8.2billion compensation scheme.
This applies to car finance agreements taken out between April 6, 2007, and November 1, 2024, where the lender paid commission to the broker.
Included are those involving discretionary commission arrangements, where brokers raised interest rates to earn extra commission without informing you.
You could also be eligible to make a claim if commissions were very high — 35 per cent of the credit cost or ten per cent of the loan amount — or if lenders had secret deals with brokers that limited your options without your knowledge.
The amount you could get depends on your contract and which rule has been broken.
But the vast majority of drivers would be in line for around 17 per cent of the interest they paid. So, for every £1,000 of interest charged, you would get back £170.
If you are unsure whether you might be eligible for a payout, do some quick checks.
Look at your contract to see what type of finance agreement you had.
The paperwork should indicate if you took out a personal contract purchase or hire purchase agreement.
If you did, and it was after April 2007, then you could be eligible.
Consumer rights group Consumer Voice also has a handy tool on its website which you can use for free to check if you could be in line for a payout.
DON’T MISS OUT ON CASH
DRIVERS who are eligible are being warned about using a claims management company or law firm to file complaints.
The service provided is legal, but it means a slice of your cash would be paid to the firm rather than all coming direct to you.
Around 7.7million claims for 3.7million customers are being handled by such firms, according to Consumer Voice.
For example, Courmacs Legal, Bott and Co and My Claim Group all take a fixed 36 per cent cut from payouts between £1 and £1,499.
On a £700 compensation payment, that would amount to £252 in fees.
Tim Hogg, director of consumer group Fairer Finance, said: “The FCA expects that many consumers who make a successful claim will be better off by paying the exit fee to leave their agreement with their claims management company or law firm.”
Some firms are less up-front about what they charge as an exit fee so, if necessary, contact them directly to get clarity.
The FCA is taking action against firms that are not transparent about their exit fee policies.
Sarah Coles, head of personal finance at investment firm Hargreaves Lansdown, said: “If you think an exit fee is unfair — or you weren’t told about it early on — you can challenge this.
“Start by complaining to the company itself.
“They’ll have eight weeks to get back to you and, if you’re not satisfied their response is right, you can complain to the Claims Management Ombudsman or the Legal Ombudsman, depending on the type of company you used.”
If you have already complained via the Financial Ombudsman Service (FOS), then you will need to wait to go through its process rather than the scheme.
HOW TO CLAIM FOR CASH
LOG a claim now with your lender. You can find a free template letter on the FCA’s website.
Crucially, if a lender cannot find your contract to determine whether yours had a clause that means you are due compensation, it will still have to pay you.
Those who apply as soon as possible will be first in line for payouts.
Lenders now have until November 18 to respond if they wish to challenge the details of the plans.
The FCA will then publish rules, and payments could start late next year.
