Pogust Goodhead has this month launched our newest initiative, ‘My Finance Claim‘. Its purpose is to hold lenders and brokers to account for motor finance mis-selling whilst securing compensation for our clients.
Motor finance mis-selling
It was nearly five years ago to the day that the Financial Conduct Authority (FCA) released its seminal investigation into the compelling evidence of widespread motor finance mis-selling.
The scale of motor finance mis-selling is overwhelming, as is the compensation due to those affected. Recent FCA figures suggest that around 1 in 3 agreements may have been mis-sold between 2010 and 2021. It suggests that the mis-selling occurred across all types of motor finance agreements. This includes Personal Contract Purchase Agreements and Hire Purchase Agreements.
Until 2021, car dealers and brokers were able to receive commissions proportionate to the interest rates that customers paid when leasing a car. This created an obvious incentive for brokers to over-charge customers. It encouraged millions to enter into financing agreements that they did not fully understand and could not afford.
For many drivers, this has meant shelling out significant sums in unforeseen additional charges and committing to higher interest rates than were necessary (in some cases nearly double what could have been achieved). For others, mis-selling ultimately forced them to take out additional loans to help finance agreements they had committed to without adequate explanation of the attendant terms and conditions.
The industry is now seeing a resurgence of interest in these complaints. This week, the FCA launched a fresh investigation into whether a government compensation scheme is needed to deal with the alleged large-scale mis-selling.
Whilst these discussions continue, the purpose of My Finance Claim is to provide affected customers with a much-needed avenue to accessing compensation and to ensure that finance companies are held accountable for these disingenuous practices.
An access to justice issue
The industry must learn its lessons from the mishandling of the PPI Scandal. Stakeholders in that case were criticised for their flawed processes and often wholesale, policy-driven rejections of consumer complaints. Indeed, a consumer’s ability to bring a successful complaint often hinged on whether they had access to advice from a professional representative. Many of these representatives were law firms.
Despite this, the Financial Ombudsman Service (FOS) recently announced that it was considering exercising new powers (granted to them by the Financial Services and Markets Act 2000) to charge relevant professional representatives so-called case handling fees for complaints referred to them. It cited that:
“[a]t present over half of complaints referred by professional representatives are not upheld, often in circumstances and case types where our approach to issues is already well established (such as fraud and scams, consumer credit affordability and allegations of mis-sale).”
Any sensible professional working in this industry acknowledges that greater regulation is required, particularly as complaints lacking merit risk prejudicing consumers with good complaints, but FOS’ proposal presents a reality that is inherently prohibitive to the consumer.
Its proposed blanket application to all professional representatives also ignores the regulatory delineation between claims management companies and law firms, and specifically the latter’s greater professional obligations.
Martin Lewis, the MoneySavingExpert, recently advised in the Metro:
“[t]he one thing you shouldn’t do is use a claims management company to make a complaint for you […] your claim is less likely to be successful. The FOS recently said 42% of motor finance complaints from individuals were upheld, compared with 8% of those from claims management companies.”
In any event, the reality is that many individuals rely on the guidance of law firms. Without this support, a significant number would choose not to pursue their claims. This risk is even more pronounced for vulnerable clients and those with protected characteristics, who may rely more heavily on this support.
The additional financial burden may result in firms having to start scale-down their operations and the number of cases they take on; particularly for smaller firms. This could result in smaller, lower-value claims being ignored.
It may equally result in the ‘mass-scale, submit everything’ approach being taken. This is often the approach of claims management companies. It precisely represents the issue the FOS is attempting to avoid (deterring the submission of unmeritorious complaints).
Representing the consumer
Maintaining space for expert representation in consumer claims is critical as we move into 2024. For ordinary people, group claims and legal representation is the best route to accessing justice. These people must be respected.
This is going to be a significant year for initiatives like My Finance Claim. We will be monitoring regulatory developments and remain committed to ensuring that the consumer’s voice is heard.
Chris Neill is a Partner and Chief Legal Officer at Pogust Goodhead.
