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Car Finance Claims: Understanding Your Rights When Lending Was Unaffordable

The UK car finance industry has come under intense scrutiny as regulatory investigations reveal widespread failures in affordability assessments. As thought leaders in financial claims, we’ve analysed many cases where major lenders failed to conduct proper checks before approving finance agreements. This comprehensive guide explains your rights and the evolving landscape of car finance claims.

The Scale of Unaffordable Car Finance in the UK

Recent Financial Ombudsman Service decisions have exposed a systemic problem across the car finance sector. Major lenders, including household names, have been found to have inadequate or non-existent affordability checking processes. This isn’t about isolated incidents – it represents a fundamental failure in lending practices that has affected countless consumers.

Our analysis of regulatory decisions shows that some of the UK’s largest car finance providers have openly admitted to not conducting proper income and expenditure assessments. This practice directly contravenes Financial Conduct Authority (FCA) requirements and has led to numerous successful claims.

Understanding Car Finance Agreements and Your Rights

Types of Car Finance Affected

Hire Purchase (HP) agreements remain the most common form of car finance, where ownership transfers after the final payment. Despite their popularity, many HP agreements were approved without proper affordability checks.

Personal Contract Purchase (PCP) has grown significantly in recent years. While monthly payments may appear lower, the total cost and balloon payment requirements make thorough affordability assessments crucial – yet many lenders failed to conduct them.

Conditional Sales and Leasing agreements are equally affected. Regardless of the finance type, lenders have a regulatory obligation to ensure agreements are affordable throughout their term.

Landmark Ombudsman Decisions Reshaping the Industry

The Financial Ombudsman Service has issued several groundbreaking decisions that establish clear precedents for car finance claims. These decisions provide crucial insights into regulatory expectations and lender failures.

BMW Finance Affordability Failures

In a significant ruling, the Ombudsman expressed shock at BMW’s lending practices: “I express some surprise that BMW does not think it needed an income and expenditure check. I’ve already said it’s up to a business to decide what information it needs – but without even the most basic details of income and expenditure it’s hard to see how any plausible assessment could be made.”https://www.financial-ombudsman.org.uk/decision/DRN2569015.pdf

Volkswagen Financial Services Criticised

Another landmark decision highlighted systemic issues at Volkswagen:

“I think Volkswagen had a responsibility to ask Mrs L for further details about her income and expenditure. Based on all the evidence, I’m not persuaded Volkswagen asked for those details, or for any supporting documents. So, I think there were a number of unanswered questions that Volkswagen needed to address, before it would have been reasonable and proportionate to proceed with Mrs L’s agreement. In these circumstances, as Volkswagen didn’t take additional steps to verify Mrs L’s income and expenditure, I think their checks before providing the hire purchase agreement to Mrs L, weren’t reasonable and proportionate.” https://www.financial-ombudsman.org.uk/decision/DRN-3861546.pdf

Lenders’ Shocking Admissions

Perhaps most concerning are the direct admissions from major lenders about their lending practices. These statements, documented in official Ombudsman decisions, reveal the extent of the problem.

Audi Finance stated:

“we do not ask for the customer’s income at the point of sale. Instead, the retailers ask the customer’s whether based on their income is the agreement affordable – it is then up to the customer’s to check whether they can afford the repayments” https://www.financial-ombudsman.org.uk/decision/DRN5143685.pdf

Black Horse similarly claimed:

“Ultimately it was for the customer to decide if the repayments were affordable based on her proposed expenditure patterns” https://www.financial-ombudsman.org.uk/decision/DRN5003607.pdf

The Ombudsman’s response was unequivocal:

“I don’t agree nor do I believe this reflects the requirements placed on lenders by the regulator. In fact the decision and burden for that decision is placed mostly on the lender as they have the ability to make the proper and measured assessment of someone’s financial position” https://www.financial-ombudsman.org.uk/decision/DRN5003607.pdf

The True Cost of Running a Vehicle

A critical aspect often overlooked by lenders is the total cost of vehicle ownership. The Ombudsman has established that proper affordability assessments must consider all associated costs.

In a binding decision against FCA Automotive Services, the Ombudsman stated: “That left a monthly disposable income of about £582 from which food, petrol, car tax and maintenance, car insurance (expensive given Mr T’s young age), and the new loan of £255 per month would need to be financed. I think this gave a clear indication that Mr T wasn’t in a position to afford the repayments towards the new agreement without experiencing difficulty or having to borrow further. FCA therefore didn’t make a fair lending decision.”

The outcome was significant: “As I don’t think FCA ought to have approved the lending, I don’t think it’s fair for it to be able to charge any interest or charges under the agreement. Mr T should therefore only have to pay the original cash price of the car”

Major Car Finance Lenders Under Scrutiny

Based on our extensive experience handling car finance claims, the following lenders have faced significant numbers of complaints regarding unaffordable lending:

• Black Horse (Lloyds Banking Group) – Learn more about Black Horse car finance claims
• Santander Consumer Finance – Explore Santander car finance claims
• BMW Financial Services – Understand BMW finance claims
• Motonovo – Discover Motonovo finance claims
• Close Brothers Motor Finance – Review Close Brothers claims

The Claims Process: A Strategic Approach

Understanding the claims process is crucial for anyone considering action against their car finance lender. The process follows established regulatory frameworks and precedents.

Initial Assessment and Evidence Gathering

The first phase involves comprehensive analysis of your finance agreement and the circumstances surrounding its approval. This includes examining what information the lender requested and how they assessed affordability.

Formal Complaint Submission

A detailed complaint is submitted to the lender, citing relevant regulatory requirements and Ombudsman precedents. Lenders are required to investigate and provide a Final Response Letter.

Ombudsman Referral

If the lender’s response is unsatisfactory, the complaint can be escalated to the Financial Ombudsman Service, which has the power to make binding decisions and award compensation.

Potential Outcomes

Successful claims typically result in the refund of all interest and charges, effectively meaning the consumer only pays the original cash price of the vehicle.

Industry Reform and Future Implications

The car finance sector faces fundamental reform following these revelations. The FCA has increased scrutiny of lending practices, and we anticipate further regulatory action. Consumers who’ve been affected by unaffordable lending have established rights to seek redress.

Taking Action: Your Options

If you believe your car finance was unaffordable, you have several options. You can pursue a complaint independently, directly with your lender and potentially the Ombudsman. Alternatively, professional representation can navigate the complex regulatory landscape and precedents on your behalf.

Remember, you don’t need to use a claims management company to make a complaint, and you can refer unsuccessful complaints to the Financial Ombudsman Service yourself for free. However, expert guidance can help build stronger cases based on established precedents and regulatory requirements.