PPI 2.0: the claims machine trying to cash in on your car finance payout

PPI 2.0: the claims machine trying to cash in on your car finance payout

Tom Saunders

7 min read

On social media, text and even by post, a message has been bombarding Britons: you could be owed thousands of pounds for mis-sold car loans.

A decision two years ago by the Financial Conduct Authority (FCA) to launch a review of motor finance deals triggered a gold rush to sign up drivers who may be able to claim compensation from banks and other lenders.

It has only intensified since a Supreme Court ruling last year that millions of motorists were mis-sold motor finance when car salesmen failed to disclose commissions paid by lenders.

Law firms and claims management companies (CMCs) have launched a marketing blitz to lure in clients with no-win, no-fee promises. If they do win, the spoils are rich: lawyers can land themselves up to 40pc of any payout.

The feeding frenzy builds upon business models refined during the heyday of the payment protection insurance (PPI) scandal, where millions of people were sold unneeded insurance. That eventually led to £36bn in compensation being paid by banks.

On Monday, law firms and CMCs are pitching themselves as a helping hand for drivers to receive what they are owed. Yet there are serious questions about just how necessary this cottage industry is.

At the end of last month, the Financial Conduct Authority (FCA) introduced its own completely free compensation scheme with total payouts expected to be £7.5bn. Unlike settlements secured through law firms or claims management businesses, drivers who take this route will keep 100pc of their compensation.

“Our scheme is free to use, and people do not need to go through a claims management company or a law firm,” a spokesman for the FCA said.

While there is no need, it is not explicitly prohibited and some law firms have dismissed the level of redress from the official FCA scheme as well below what consumers should be entitled to. They have instead pledged to go directly through the courts.

“Our position is that the scheme will work for some clients with lower value claims who want a quick outcome, but it represents a compromise, designed to limit the liability of the lenders rather than fairly compensate consumers,” says Robert Whitehead, the chairman and owner of Barings Law.

A case led by Barings against eight lenders is currently in the Court of Appeal and will determine whether firms can file class-action-style mass claims, or must do so individually.

Barings has been active in a range of mass-consumer claims, including data breaches, Dieselgate and aspects of the PPI scandal. The outcome of the motor finance case is hugely consequential for the law firm.

When Whitehead took over last year, Barings had just reported a £13m loss and its auditors were questioning whether it could survive. Court delays, and the existence of the free redress scheme, were both cited as potential points of concern by auditors.

Yet Whitehead argues Barings is sitting on £300m of potential revenue, much of it tied to car finance payouts.

Whitehead also runs WHD Broking, which offers services including car finance. It is understood WHD Broking, whose primary source of income is providing consultancy to law firms, has never generated business in motor finance and references to the services were removed from the company’s website after Whitehead was contacted by The Telegraph.

Some law firms do not appear to inform potential clients about the existence of the free FCA scheme at all, instead telling people they could win thousands of pounds at court – far more than the FCA has said the average claimant would be entitled to.

This is despite the fact that the Solicitors Regulation Authority (SRA), which regulates law firms, has said it expects any firm to inform its clients about the FCA’s scheme.

Sam Ward, the boss of Sentinel Legal, has often appeared in the media to explain the details of car finance. His firm’s website wrongly stated that the FCA’s scheme was yet to arrive. It tells potential clients that they could win an “average payout” of £5,318, despite the FCA expecting average redress payments to be around £830.

Sentinel’s website removed the reference to the FCA scheme still being in consultation after it was contacted by The Telegraph.

Mr Ward said that Sentinel had informed clients of their available options and said the FCA’s compensation scheme was not the “sole or definitive route to redress for consumers”.

Sentinel said its payout figures were representative of what it believed clients could get through the court, and that it had already achieved wins above the FCA’s figure.

The SRA has so far taken no action against any law firm involved in soliciting car finance, though it has opened investigations into 71 firms.

But enforcement action in the CMC sector, which helps solicitors find car finance clients, suggests it is something of a wild west. The FCA has taken down more than 800 misleading adverts, including ones featuring Martin Lewis, the consumer champion, without permission. It has also forced three CMCs to reduce their unreasonable fees and blocked four more from taking on new clients.

“We have concerns about the bad actors in this space. They don’t help us or anybody else,” says a senior figure at one claims law firm that has itself reported rivals for misleading advertising.

The FCA said that if drivers chose to go to a law firm or CMC for compensation “they must be able to trust those firms to act in their best interests”.

In January, the FCA took the unprecedented step of publicly announcing an investigation into the Claims Protection Agency (TCPA), which promised to recover thousands of pounds for victims of alleged car finance mis-selling in adverts featuring Tyson Fury, the heavyweight boxer.

The watchdog said it had “concerns about its advertising and sales tactics in relation to potential motor finance claims”.

The Claims Protection Agency said: “We have fully co-operated with the FCA in relation to its investigation, which we believe will exonerate our position. We wish to reassure consumers that we are fully able to continue to manage their compensation claims.”

TCPA received funding from Katch Investment Group, a London-based boutique hedge fund. Katch wound down its litigation fund last year, but past years suggested it was a highly profitable business. It reported a return of 19.1pc on parts of the fund in 2023, the last year that accounts were available.

Katch also provided funding to Consumer Rights Solicitors, which is heavily involved in motor finance litigation and PPI litigation.

When contacted by The Telegraph, the law firm made no mention of the existence of the FCA’s redress scheme on its website, saying only that it is “expected in 2026 at the earliest”.

Consumer Rights Solicitors did not provide a response to a request for comment, but updated the information on its website after it was contacted by the newspaper. Katch Investment Group also did not provide a response to a request for comment.

The City watchdog and the SRA have launched a joint taskforce to crack down on poor practice in motor finance claims.

It is not just advertising that is concerning the two regulators. Lenders have seen numerous instances of the same customer being claimed by multiple firms simultaneously, something regulators have told companies not to do.

In one case, 21 different CMCs and law firms were all representing the same client, vying for a share of a single redress payment.

Even as law firms and CMCs scramble for a slice of the motor finance payouts, the end of the scandal appears closer than ever.

Yet for these businesses, there will always be other scandals to pursue. In fact, the motor finance mis-selling scandal has its roots in the last big payday.

After PPI, law firms looked to other areas where such “unfair relationships” might have existed, leading them to motor finance. No doubt there will be another scandal around the bend – at least in the eyes of the claims industry.