Santander, Lloyds Banking Group and MotoNovo face compensation claim for overcharging approximately 1 million consumers across the UK for used car finance

Approximately one million used-car buyers across the UK could be owed compensation for interest rate overcharging as a result of the operating models used by finance providers, according to legal claims filed at the Competition Appeal Tribunal on Friday 21st July.

• Three major legal actions, the “Car Finance Claim”, have been launched in the UK’s specialist competition court seeking compensation for approximately one million consumers who were unknowingly overcharged on their motor finance deals for used cars between 01 October 2015 and January 2021.

• The Car Finance Claims are being brought by consumer advocate, Doug Taylor, against three of the largest motor finance providers by market share: Black Horse Ltd. (Lloyds Banking Group), MotoNovo Finance Ltd. and Santander UK.

• The collective claims are expected to affect approximately one million consumers, with the total value of the claims being approximately one billion pounds.

• Under the longstanding and widely used ‘discretionary commission’ model for motor finance agreements, car dealers were incentivised by motor finance companies to charge consumers higher interest rates than they otherwise would have done, in order to receive a higher rate of commission.

• This practice was banned by the FCA in January 2021. However, the ban only protects consumers on a forward-looking basis and does not make provisions for those who suffered financial harm as a result of these practices to participate.

• Anyone who bought a used car on finance from Black Horse, MotoNovo or Santander between 01 October 2015 and 27 January 2021 will be part of the class. The claim is an opt-out collective action, meaning affected customers are automatically included in the claims and are not required to take any action.

The legal claims are being brought as opt-out collective actions against three of the UK’s largest motor finance providers by market share: Black Horse Ltd. (Lloyds Banking Group) (35.3%) MotoNovo Finance Ltd., (11.8%) Santander UK (9.4%).

The claims argue that consumers were unknowingly charged higher interest rates due to a network of anticompetitive agreements between providers of motor finance and automotive dealers. The claims seek to recover damages for any customers who entered into finance deals with these companies and suffered financial harm as a result of their practices.

According to estimates made by the FCA on the potential cost of excessive interest rates charged to consumers, the total value of the claims is expected to be approximately one billion pounds.

Anyone who entered into motor finance agreements with Black Horse, MotoNovo Finance or Santander UK to purchase a used car between 01 October 2015 and 27 January 2021 is covered by the claim. 

The opt out collective action is being led by class representative, Doug Taylor, an experienced consumer advocate who has dedicated much of his career to trying to empower consumers to receive a fair deal. Mr. Taylor has instructed law firm Scott + Scott to represent him.

Doug Taylor, class representative, said:

“We believe that Black Horse Ltd (Lloyds Banking Group), MotoNovo and Santander took advantage of their customers.

Affected consumers unknowingly paid more for their car loans because of the way these companies incentivised dealers.

With this legal action, I am standing up for people across the UK who have been affected by the actions of these companies, seeking justice and compensation for the financial losses they have suffered.”

Motor finance agreements: causing harm to consumers

When a customer purchases a used car on finance, the finance terms are negotiated between the customer and the used car dealer. In this context, dealers are generally acting as FCA regulated credit brokers, whose role is to introduce customers to third party credit providers. The relationship between car dealers and credit providers is governed by an operating agreement.

The discretionary commission model was extensively used in the motor financing industry until 2021, when the practice was banned by the FCA in January 2021. This is a practice where car dealers or finance providers have the discretion to set the level of commission they earn from arranging car finance for customers. This means that dealers’ rates of commission were often tied to the interest rate and terms of the finance deal offered to the customer.

The practice was banned by the FCA in January 2021 over concerns that the model created an incentive for car dealers or finance providers to arrange finance deals that were not in the best interest of consumers, including pushing customers into high interest rate loans that result in higher commission earnings, even if the customer could qualify for a better deal.

As part of its investigation, the FCA estimated that under the discretionary commission model on a typical motor finance agreement, customers could be paying around £1,100 more in interest charges over the four-year term of the agreement on a £10,000 loan. The FCA estimated that this practice cost consumers around £165 million per year.

Belinda Hollway, Partner at Scott + Scott, said:

“Collective proceedings like this are vital because they provide the opportunity to hold large companies to account on behalf of consumers.

We are proud to be working alongside Doug Taylor to seek justice for consumers across the UK who have been take advantage of by these large finance companies, and to help them to get back what they’re owed.”

The action is funded by Woodsford, a global ESG, access to justice and litigation finance business, so class members will not have to pay any of the costs of the action themselves.

Charlie Morris, Chief Investment Officer for Woodsford, commented:

“Doug Taylor has a strong background and track record in defending consumer rights and is the right person to bring this claim. We are pleased to be providing the finance to allow this action to take place.

Litigation finance is fundamental to actions of this kind; it levels the playing field and provides consumers with equality of arms and affords access to justice so that companies like Black Horse Ltd., MotoNovo and Santander can be held account for their misconduct.

Legal basis for the action

The claims, which are being brought as “opt out” collective actions, will allege that these operating agreements amounted to a prevention, restriction, or distortion of competition in breach of Chapter I of the Competition Act 1998. The collective action regime was set up through the Consumer Rights Act 2015 precisely to facilitate this more cost-effective, efficient, and wider-reaching route to compensation.

Who is eligible?

Anyone who entered into motor finance agreements with Black Horse, MotoNovo Finance and Santander to purchase a used car between 01 October 2015 and 27 January 2021 is covered by the claim. Up to one million consumers are thought to be affected.

Will there be any cost for class members?

There is no cost for class members. This action is being funded by Woodsford, a global ESG, access to justice and litigation finance business. By absorbing both the costs and risks associated with a claim of this size, Woodsford is enabling the claim to be brought and ensuring that as many affected consumers as possible benefit from this legal action.

What next?

It will be for the Competition Appeal Tribunal (CAT) to determine whether or not Mr. Taylor’s claims are allowed to proceed.  If the claims are permitted to go forward then affected consumers who live in the UK will not have to pay any legal fees or contact lawyers, as they will be automatically included in the claim unless they choose to opt-out.

Further information

Further information on the action can be found on the Car Finance Claim website.  Those affected are encouraged to sign up on the website to be kept up to date on the case.