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Consumers have lodged a record number of complaints about car loans with the UK financial ombudsman, raising the pressure on regulators ahead of a crucial court case next month.
The Financial Ombudsman Service said on Tuesday it had received 18,658 new cases about car loans in the three months to December, overtaking credit cards as the product subject to the most unresolved complaints in the British financial sector.
The rapid growth highlights how car loans are swiftly becoming the biggest UK consumer finance scandal since banks paid £50bn of redress over payment protection insurance.
The controversy has added to a sense of turmoil at the FOS after its chief executive unexpectedly quit last month, days before the chair of the historically low-key body called for a “radical” shake-up of its rules and announced plans to leave.
City of London executives have criticised the ombudsman — an independent body subject to rules written by the Financial Conduct Authority — for being too quick to award compensation to customers, which bosses say deters foreign investors from the sector.
The government has responded by calling for a review of the redress system.
Figures for the final quarter of 2024 show car finance cases filed at the ombudsman rose by a third from the previous quarter and more than tripled from a year earlier to reach their highest on record.
The data includes both hire purchase and conditional sale car financing agreements.
Cases about car finance have continued to pile up at the ombudsman despite the FCA pausing the complaints process in this area while regulators await the outcome of crucial court cases.
The Supreme Court is next month due to hear an appeal by car loan providers challenging a ruling last year from the Court of Appeal, which shocked banks by siding with consumers in their complaints about “secret” commissions on car loans.
The judgment that it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent prompted HSBC analysts to estimate that the total cost of compensation for banks could reach £44bn.
This was followed by a High Court decision in December that dismissed a challenge by Barclays against an FOS ruling that it had unfairly added a £1,300 commission to the cost of a car loan in 2018. Barclays is appealing against that decision.
Until those cases are fully resolved and the FCA ends its pause on the complaints process, the ombudsman is unable to issue decisions on car loan claims.
“We are continuing to see high volumes of motor finance commission cases and would encourage businesses to consider whether complaints are covered by the FCA’s temporary complaint handling rules,” said James Dipple-Johnstone, interim chief ombudsman.
To avoid a logjam of cases, the ombudsman is conducting preliminary investigations into car finance cases, which Dipple-Johnstone said would “ensure we can resolve them as quickly as possible when we have the clarity we need”.
Despite higher car loan cases, the overall number of complaints lodged at the ombudsman dipped to 68,430 in the final quarter of 2024, down 7 per cent from the previous quarter.
Almost 80 per cent of car loan cases in the three months to December were filed by professional representatives, such as claims management companies, which bring cases on behalf of consumers in exchange for a cut of any compensation awarded.
The ombudsman, which has decided to start charging claims management companies to bring cases from next month, said such organisations accounted for 47 per cent of all its complaints between April and December last year, up from 21 per cent in the same period a year earlier.
The FOS said 36 per cent of cases brought directly by consumers were upheld, while it upheld only 26 per cent of complaints brought by professional representatives.
https://www.ft.com/content/9724b6d8-ad3e-4619-a6e2-784b110c1114
