Martin Lewis warns car finance payouts could backfire with ‘higher costs’ for motorists

Martin Lewis has warned car finance payouts could be 'counterproductive' (Image: ITV)

Martin Lewis has warned major payouts to car finance customers could backfire on motorists in the long run in a major revelation.

The Money Saving Expert founder suggested compensation could become an "existential threat to consumer lending” with individuals likely to pay “higher costs” in the future. 

The Financial Conduct Authority (FCA) is conducting an investigation into the motor finance industry over concerns motorists may have paid extra commission on their deals. 

It could see individuals who purchased a car on finance between 2007 and 2021 receive compensation payouts with Lewisurging individuals to process complaints quickly.

An update from the FCA led him to consider that more road users could now be affected than previously thought. 

Motorists have been urged to get car finance complaints in as soon as possible (Image: Getty)

It was originally believed payouts looked likely for customers after lenders hid Discretionary Commission Arrangements (DCAs) without consumers knowing.

However, a Court of Appeal ruling has “opened the door to possible reclaims for all car finance commissions”.

The likely decision to expand the scope of motorists affected has left Martin to query whether mass PPI-style payouts would actually harm some individuals later down the line.

He posted on social media site X: “I find it more difficult to see the unfairness and that redress is due on car finance firms with fixed commission that were following regulators guidelines. 

“And even then if it is thought that redress must be due, the test surely must be something like was it hidden that there was commission, and most importantly was the commission charged excessive?

“If not and we move to a model of car finance reclaims of 'any commission if amount wasn't known' was unfair and should all be repaid, is a push even for me, and may risk being counterproductive to consumers as it is a potentially existential threat to the consumer lending and could both mean less availability and higher costs in future. “

On Wednesday, the FCA announced they will extend the time for motor finance forms to respond to consumer complaints by an extra two weeks. 

The extension will keep procedures open until mid-December after the FCA admitted that a recent Court of Appeal ruling would likely lead to a “high volume of complaints”.

The court claimed it “was unlawful” for the brokers to receive a commission from the lender providing motor finance without obtaining the customer’s informed consent.

It means consumers just be told “all material facts, including the amount of the commission and how it was to be calculated.”