Car finance companies are experiencing challenges due to potential compensation claims

The UK’s financial regulator is currently investigating whether millions of drivers have been overcharged on their car finance, potentially leading to a wave of compensation claims that could rival the infamous PPI scandal.

Simon Evans, the head of the Consumer Redress Association, believes that the number of claims could more than double as many people may have purchased multiple cars between 2007 and 2021. This revelation comes after consumer expert Martin Lewis disclosed that 1.1 million complaints have already been submitted through a tool on the MoneySavingExpert.com website.

With the possibility of car finance mis-selling becoming the “second biggest reclaim payout in UK history” after the PPI scandal, the scale of those affected could be significant. Mr. Evans stated that each person may have an average of 2.3 claims, indicating a potential headache for car finance companies.

However, the chief executive of the Financial Conduct Authority (FCA), Nikhil Rathi, downplayed comparisons to the PPI redress, noting that the watchdog has intervened earlier in this case. Despite this, major financial institutions like Lloyds Banking Group and Close Brothers Group have already set aside hundreds of millions of pounds to cover potential costs related to the FCA’s review.

As the FCA is expected to outline its next steps by the end of September, the looming possibility of widespread compensation claims for overcharged car loans continues to grow, potentially reshaping the landscape of the car finance industry in the UK.