The Financial Ombudsman Service (FOS) has has recorded the highest ever volume of complaints over the last five years for consumer credit motor finance related issues.

New data for Q2 2023 shows 4,622 complaints about hire purchase (motor) and 1,569 complaints about conditional sale (motor).

While on the insurance side there were 4,036 complaints about car/motorcycle insurance. These are the highest complaint levels the Financial Ombudsman has received for all three individual products in over five years.

Together this has meant that disputes arising from both the financing and insuring of people’s cars, motorcycles and caravans reached 11,869 complaints.

Comparatively in the same period the year before, there were 6,744 complaints to the Ombudsman about issues related to motor vehicles.

Abby Thomas, chief executive and chief ombudsman of the Financial Ombudsman Service, said: “Buying a vehicle can be costly and stressful, and we’re now also increasingly hearing from people worried about whether they can pay their finance deals.

“What’s clear is that whatever the perceived issue, firms need to ensure they are treating customers with transparency and fairness.”

The complaints data shows that many car finance agreement claims are being submitted by professional representatives.

Altogether they account for more than 90% of cases related to unaffordable or irresponsible lending, and 70% of complaints about fees, charges and commission.

However, the uphold rate for these motor finance complaints brought by professional representatives was particularly low at just 8%, compared to a 42% uphold rate when cases in the same category were brought directly by consumers.

This rate is also much lower than the 35% uphold rate for general complaints brought by professional representatives across all categories during the same time period.

Floodgates could open for ‘the next PPI’

No win no fee firm Bott and Co said it has been advised that the FOS will release the first final binding decision on investigations it has been holding over the last three years into the misselling of motor finance.

According to Bott and Co: “A decision is expected before Christmas or in the early part of January.” It believes the misselling of motor finance could be the next Payment Protection Insurance (PPI) scandal.

In March 2019 the Financial Conduct Authority released a report detailing the findings of an investigation it had been carrying out for several years, in relation to the motor finance sector.

At the time, the FCA said: “Where we have identified concerns through our findings, we will follow up with the individual firms.

“Where necessary, we may consider supervisory or enforcement action. We may also ask firms to report to us on progress in addressing issues.”

A spokesperson for Bott and Co said this FOS investigation, prompted by the increase in complaints and work the FCA has done, "could set a precedent on how millions of similar motor finance complaints should be handled by lenders and could then open the floodgates for millions of consumers to claim compensation more easily".

The firm estimates that millions of consumers have already been overcharged as a result of commission arrangements before they were eventually banned by the Financial Conduct Authority from January 28, 2021.

FOS told AM it couldn't comment on individual cases and was not able to give information on a timeline when a decision on investigations would be released.

Before the ban, some car retailers and motor finance brokers received commission linked to the interest rate that customers pay – creating an incentive to sell more expensive credit to some customers.

The broker could then effectively set the interest rate and the FCA found that the widespread use of this type of commission created an incentive for brokers to act against customers’ interests.

The FCA estimated at the time that the ban would save customers £165 million a year.