Car finance scandal details exposed in new BBC Radio 4 documentary

A new BBC documentary has shed further light on the emerging car finance scandal, including the industry experts and members of the public who raised their concerns, ultimately leading to an investigation by the Financial Conduct Authority (FCA).

The scandal saw lenders allowing dealers to adjust interest rates they offered customers buying a vehicle on finance; the higher the interest rate, the higher commission the dealer received. These arrangements offered dealers incentives to offer agreements often leading Brits to pay more than they needed to.

The FCA banned the practice in 2021 and is currently investigating these agreements, explaining on its website that since the ban there has "been a high number of complaints from customers about how much they were charged before the ban".

They added: "Providers were rejecting most of these complaints, because they believe they haven’t acted unfairly and haven’t caused customers to lose out. Once we get the Supreme Court's decision, if we find that motor finance customers have lost out, it's likely we’ll consult on introducing a redress scheme."

You can find out more including how to make a claim if you think you were missold car finance on the Financial Conduct Authority's website.

READ MORE: How to check if you were mis-sold car finance and make a claim for compensation

Since the FCA banned the practice, dealers have to be fully transparent with customers about any commission they're receiving from that sale.

In October 2024, the Court of Appeal ruled on three cases involving car finance, judging that it was against the law for the dealers to receive a commission from the lender without first telling the customer about the commission and getting their informed consent to the payment. The lenders involved in the case are appealing the decision to the Supreme Court.

Currently, the industry is waiting on the Supreme Court ruling - and if it upholds the ruling, it could see lenders forced to pay out tens of billions in compensation for selling deals with higher interest rates to get higher commissions.

Brits who bought a motor vehicle on finance before 28 January 2021 may be eligible to claim, and it's estimated that payouts could total around £30billion. As a result, the industry and UK government have expressed concerns about the economical impact.

According to the BBC, nine in ten people in the UK who buy a car use finance, making the sector the second largest lender to consumers in the UK after mortgages.

Helen Catt, reporting for BBC Radio 4 - File on 4 Investigates, spoke to the owner of an electric car dealership, who said they had concerns when they first tried to buy a car, before setting up their business.

They explained: "The overwhelming thing is that everywhere we went, whether a small forecourt or a large dealership was that talking about the finance product that they would like you to sign up to was the first conversation - it led the conversation, rather than the car itself."

When they opened their own dealership, they decided they would put their products first, with finance arrangements being pure logistics because the high interest rates and commission agreements "didn't sit right with us".

They claimed that when buying a car they were often offered two prices, with a discount on offer if they opted to buy the vehicle on finance.

You can listen to the full episode here.