Mis-sold car finance, executors and estate administration

It is likely that you will have seen reports in the news about the mis-selling of car finance and the possibility of claiming compensation.  The Financial Conduct Authority (FCA) believes that millions of motorists may be entitled to make a claim and its general counsel has questioned whether the brewing scandal may ultimately be of similar magnitude to the mis-selling of Payment Protection Insurance (PPI), which is estimated to have cost the banking industry £50 billion.

There will be further developments as the FCA’s investigation continues, but in the meantime how does this scandal affect executors (and potentially trustees) and how can they ensure they are fulfilling their duties to beneficiaries?

What is mis-sold car finance?

The FCA’s investigation was initially focused only on Discretionary Commission Arrangements (DCAs) but, following a ruling by the Court of Appeal in October 2024, has been extended to fixed commissions as well.

Where a vehicle is sold under a DCA, the vendor has the ability to adjust the interest rates offered to the buyer.  Normally, a higher interest rate being set would result in more commission being paid to the vendor by the finance provider.  The FCA banned DCAs in 2021 but is now reviewing whether there was an industry-wide failure to comply with regulations in the period from 2007 – 2021, and the harm which this caused to consumers.

A fixed commission is where a vendor receives a fee which is either static or calculated as a percentage of the amount borrowed from the finance provider.  Unlike DCAs, the commission is not affected by the rate of interest.  Fixed commissions do not appear in themselves to be a problem, but the Court of Appeal found that insufficient information was being supplied to buyers at the time of purchase, e.g. whether the vendor was receiving a commission at all and, if so, how much.  Without sufficient information being provided to them, it is difficult to see how consumers can be said to be consenting to the payment.

How does mis-sold car finance  affect executors?

Executors owe fiduciary duties to the beneficiaries of the estate for which they are responsible and have an obligation to maximise the estate’s value.  If someone has a right to bring a claim against another then, should they die without having pursued that claim, the right of action becomes an asset of the estate which vests in the executors.  The executors can themselves pursue the claim on behalf of the estate.

If an executor does not pursue a claim on behalf an estate, even if they do not know about the deceased’s right of action, then they are exposing themselves to the risk that they have not maximised the estate’s value and they may be personally liable to the beneficiaries.

Whilst the FCA’s investigation is ongoing, the current criteria for bringing a claim appear to be that someone:

1. Bought a motorbike, campervan or car
2. For personal use (e.g. not through a business)
3. On finance
4. After April 2007.

What should an executor do if they suspect an estate involves mis-sold car finance?

In some circumstances an executor is likely to already know whether the deceased met those criteria.  In many other cases, however, they will not and they will need to undertake a thorough investigation of the deceased’s paperwork to establish whether there is a potential right of action.  The investigation should also include speaking to the deceased’s friends and family, to see if they can provide any useful information or direction.

If an executor does establish that the deceased met the ultimate criteria then, whilst the compensation scheme will not have been determined until the FCA finishes its own investigation, the executor can already lodge an initial complaint with the relevant finance provider(s).  If the complaint relates to a DCA the executor must receive a response by 04 December 2025.  There is no fixed deadline for complaints about fixed commissions, yet.

Executors should also be aware that, if they are dealing with a taxable estate, a right of action is an asset which will need to be valued for inheritance tax purposes, and reported to HMRC.

Given that a resolution of these claims may be some years away, executors also need to consider whether there are any steps they can take to ensure that this does not delay winding up the estate unduly.  This could vary from estate to estate depending on the circumstances, and executors may well want to take advice on this point.

What compensation might be expected?

In the two test cases considered by the ombudsman so far, both involving DCAs, the compensation awarded to the respective complaining buyers was calculated by reference to the difference between the lowest interest rate at the time of purchase and the rate actually paid.  In one of the cases, the lowest rate available at the time was 2.49% and the rate actually paid was 5.5%, which would be a saving of approximately 55%.

Therefore, with DCAs, the amount of compensation is dependent upon the nature of the financial agreement entered into.  With fixed commissions, it appears compensation will be calculated by reference to the commission actually paid, with further details to be released in due course.

If you have any questions about this topic, or any other area of estate administration, please get in touch.