Grasping car salesmen have been secretly overcharging customers more than £1,000 each for car loans so they can pocket more commission.
The City watchdog has warned that as many as 500,000 car buyers are being ripped off in a scam costing them an estimated £300million a year in excess interest payments.
Following a two-year investigation, the Financial Conduct Authority said it had uncovered ‘serious concerns’ about commissions paid by banks and the finance arms of car makers to dealers.
But despite saying it will consider whether to ban certain types of commission, the FCA told the Mail it is not planning to take any action over existing loans, or force lenders to pay compensation to customers who have been overcharged.
Consumer campaigners said the practice had echoes of mis-selling scandals of the past – including Payment Protection Insurance – which were fuelled by commission.
Baroness Ros Altmann, former pensions minister, said: ‘It is deeply troubling that a system has been created which encourages salesmen to make money at the expense of unsuspecting customers by pushing them into rip-off loans they cannot afford.
‘This is guaranteed to lead to bad outcomes for customers. It doesn’t seem that lessons have been learned.’
The Financial Leasing Association, which represents the car finance industry, admitted commissions have been widely linked to interest charges for around 30 years, raising fears that millions of car buyers may have been overcharged.
But its head of motor finance Adrian Dally said the FCA’s report was based on ‘out of date information’ and stressed the majority of firms have now ditched the practice.
Sue Robinson, director of the National Franchised Dealers Association, said: ‘Franchised retailers are authorised by the FCA and abide by its rules and guidance. Retailers take rigorous steps to be compliant with consumer credit rules.’