MTTM Podcast Episode 515 – Important car finance mis-selling update & base rate surprise

Listen to Episode 515

On this week's podcast we explain the latest development in the car finance mis-selling scandal and what action you need to take. We also discuss the latest Bank of England base rate cut. While it was widely anticipated, we explain why the market was caught off-guard by what was contained in the accompanying meeting minutes.

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Episode 515 Podcast Summary

Car Finance Mis-selling: A Redress Scheme Could Be On Its Way

Summary

I reveal the latest developments in the car finance mis-selling scandal following a key Supreme Court ruling. The main focus is on Discretionary Commission Arrangements (DCAs), where car dealers could inflate interest rates to boost their own commission. The FCA is now set to consult on a formal redress scheme by October 2025, which could see payouts totalling between £9 billion and £18 billion. While the scheme may be automatic, you can still proactively check if you were affected and log a complaint. However, it's crucial to avoid claims management companies as they will inevitably take a large cut of any compensation you receive.

Key insights

• Two Types of Mis-selling: The scandal involves two main issues: Discretionary Commission Arrangements (DCAs), where dealers inflated interest rates, and broader commission disclosure failures.
• Redress Scheme: The FCA will consult on a formal redress scheme by October 2025. It will cover DCAs and may include other cases where the commission was excessive. The scheme could be retrospective, going back as far as 2007.
• Potential Payouts: The total compensation pot is estimated to be between £9 billion and £18 billion, with most individual payouts expected to be less than £950. Payments are likely to begin in early 2026.
• What You Should Do: If you had car finance before 28th January 2021, you can use free online tools to contact your lender and ask if you had a DCA. This allows you to log a complaint, though the redress scheme may eventually be automatic.
• Avoid Claims Companies: Do not use claims management firms. An automatic redress scheme means they will take 20-30% of your payout for doing nothing.

Bank of England's "Hawkish" Rate Cut

Summary

The Bank of England has cut the UK's base rate from 4.25% to 4.0%, as was widely expected. For those on a tracker mortgage, this means an immediate saving of around £13 per month for every £100,000 borrowed. However, the decision was not straightforward. The Monetary Policy Committee was split, with a final 5-4 vote in favour of the cut only after a historic second ballot. This has been dubbed a "hawkish cut" because the meeting minutes also revealed a higher inflation forecast of 4% for later this year, causing the pound to strengthen. This suggests future rate cuts may not be as certain, and mortgage rates could stagnate for now.

Key insights

• Base Rate Cut: The Bank of England base rate has been cut by 0.25%, from 4.25% to 4.0%.
• A "Hawkish" Decision: The cut was passed on a narrow 5-4 vote, requiring a second ballot for the first time in the committee's history. This signals a lack of consensus and caution about the future.
• Inflation Worries: The Bank now predicts inflation will rise to 4% later this year, stickier than previously forecast. This hawkish tone caused the pound to strengthen against the dollar.
• Impact on Borrowers & Savers: Tracker mortgage payments will fall. Savings rates will be cut almost immediately by banks. New fixed-rate mortgage deals may stagnate rather than fall further, as the market digests the Bank's cautious outlook.
• Future Outlook: Market predictions suggest rates will fall slowly, potentially reaching 3.5% by 2027 before creeping up again. However, the unexpected split vote shows that this path is uncertain.

Episode quiz 

1. What is the primary issue behind the car finance mis-selling scandal?
a) Dealers were selling cars that were not roadworthy
b) Car dealers or brokers could increase the interest rate on a loan to boost their own commission without informing the buyer
c) Lenders were failing to carry out proper affordability checks on borrowers
d) The price of the cars was being artificially inflated by manufacturers

2.The Supreme Court ruling clarified that not disclosing commission isn't automatically illegal, but that a deal could be deemed unfair if the commission was what?
a) Excessive
b) Over £500
c) Paid in cash
d) Paid to the manufacturer

3. The FCA is considering making the redress scheme retrospective, potentially including agreements going back to which year?
a) 2000
b) 2002
c) 2007
d) 2010

4. What was the final vote split within the Monetary Policy Committee (MPC) for the rate cut, which required an historic second ballot?
a) 8-1
b) 7-2
c) 6-3
d) 5-4

5. According to market predictions chart discussed, where is the base rate predicted to be by January 2027?
a) 4.5%
b) 4.0%
c) 3.5%
d) 3.0%

Answers

1. b) Car dealers or brokers could increase the interest rate on a loan to boost their own commission without informing the buyer
2. a) Excessive
3. c) 2007
4. d) 5-4
5. c) 3.5%

Resources

Links referred to in the podcast:

• Try our AI guidance tool 'DaMoney' - Ask it any money question
• Car Finance Mis-Selling Review
• FCA to Consult On Car Finance Compensation
• MSE Car Finance Complaint Logging Tool
• Best Mortgage Rates in the UK
• Sign Up To The MTTM Weekly Newsletter

 

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