Is car finance the next PPI? Claims management firms cause concern

theguardian.com:

U K consumers were this week urged to avoid the “plague” of claims management firms targeting people who may have been mis-sold a car finance deal. It has prompted suggestions that these firms may regard car finance as “the next PPI”.

Complaints about car finance lenders almost doubled in the last financial year, driven by an increase in third-party firms submitting claims on behalf of individuals.

That has led to warnings that affected consumers could be missing out on the full amount of compensation owed.

According to the Financial Ombudsman Service, which handles consumer complaints related to financial products, there were 11,452 complaints about motor finance deals between 1 April 2022 and 31 March 2023. That is up from 6,128 complaints in the previous financial year.

The proportion of claims relating to commission, fees and charges on these products increased from 1,472 in 2021-22 to 5,658 in 2022-23.

The ombudsman says about 90% of the 2022-23 complaints have been brought by third-party representatives – that is, claims management firms and law firms.

These companies typically operate on a “no win, no fee” basis but take a cut of any compensation offered if the claim succeeds. The rate varies but many firms take about 25% plus VAT.

However, the Financial Ombudsman Service is free to use, and consumers don’t need to use a third-party claims management firm to make a complaint.

The consumer rights expert Martyn James says the behaviour of claims management firms in this area is similar to the multibillion-pound payment protection insurance (PPI) mis-selling scandal.

“Mis-selling certainly seems to have been widespread when it comes to affordability – and the inherent complexity of how these deals work makes it very