Mis‑Sold Products and Interest Recovery

Consumers in England and Wales who have been mis‑sold products or credit agreements may be entitled to recover not only the principal amounts they paid but also interest on those amounts. Interest recovery is a key component of putting a claimant back into the position they would have been in but for the mis‑selling. This applies particularly in financial mis‑selling cases where costs, charges or commissions were unfairly imposed and where regulators have established redress schemes. This article explains how interest recovery works, when it applies, the legal basis for it, and how consumers can pursue interest on compensation.

What Is Interest Recovery in Mis‑Sold Claims?

Interest recovery refers to the payment of additional money on top of compensatory sums awarded to a claimant to account for the time value of money. When consumers pay more than they should have due to mis‑selling - for example through inflated charges, undisclosed commission or unnecessary additions like mis‑sold insurance - interest may be added to the compensation to reflect the fact that they were deprived of that money over time.

Interest recovery arises in several contexts:

• statutory redress schemes (e.g. for mis‑sold car finance agreements);
• compensation awards by the Financial Ombudsman Service (FOS);
• court awards in contract and misrepresentation claims; and
• specific guidance by regulators on financial mis‑selling cases.

Recovering interest is part of ensuring that compensation reflects the full detriment suffered by the consumer.

Legal and Regulatory Background

Redress Schemes and Interest

Recent frameworks introduced by the Financial Conduct Authority (FCA) for mis‑sold car finance compensation include a specific interest component. Under these schemes:

• compensation settlement sums include interest added to the redress amount;
• interest is typically calculated at a minimum of 3% per year based on the Bank of England base rate plus a margin; and
• interest ensures claimants are compensated for the cost of capital over the period since the mis‑selling occurred.

These principles reflect a broader approach to redress where regulatory authorities seek to restore the consumer to the financial position they would have otherwise enjoyed.

Statutory and Case Law Principles

In court and tribunal claims, interest may be awarded under the Courts Act 2003 or through contractual remedies to reflect loss of use of money. Where compensation is calculated for mis‑sold products, the court may award interest from the date of loss or delay in settlement. In financial mis‑selling claims - such as those arising from breaches of the Consumer Credit Act 1974, Consumer Rights Act 2015, or misrepresentation - interest is often considered part of the compensatory remedy.

HM Revenue & Customs guidance confirms that compensation payments for mis‑sold products may include an “enhancement” element that constitutes interest for being deprived of use of funds over time.

Examples of Interest Recovery in Mis‑Sold Scenarios

Car Finance Mis‑Selling Compensation

Under the FCA‑led car finance compensation scheme:

• eligible consumers who were mis‑sold hire purchase or personal contract purchase agreements are entitled to compensation that includes repayment of undisclosed commissions and interest on that compensation;
• the minimum interest rate applied is typically Bank of England base rate plus 1%, with a floor of 3% per year; and
• the aim is to approximate the position holders would have been in if they had not been charged unfair fees or higher interest.

This interest recovery recognises that mis‑selling imposed a cost over many years.

Payment Protection Insurance (PPI)

In long‑running PPI mis‑selling cases, compensation awards include reimbursement of premiums plus interest. FOS decisions typically instruct firms to pay interest on PPI redress to ensure consumers are put back into their rightful financial position.

Interest on mis‑sold PPI is often considered at the standard rate used by ombudsman services or courts, and is calculated from the date of payment until the date of settlement.

Other Mis‑Sold Consumer Products

Where other products are mis‑sold - such as extended warranties, packaged accounts, or packaged products tied to credit - the principle remains that interest can be part of compensation if the consumer has paid sums they would not otherwise have paid. Financial services regulators, courts and tribunals apply this consistently to account for time value and harm.

How Interest on Redress Is Calculated

Interest on compensation can be determined using several methods:

• Simple interest: A fixed percentage applied to the principal sum each year without compounding. This is a common approach in ombudsman awards.
• Statutory interest: Courts have discretion to award interest based on statutory provisions, often from the date of loss to the date of judgment.
• Regulatory formulae: Some schemes specify interest rates and calculation periods, such as annual base rate plus a margin.

The chosen method depends on the context of the claim and the forum in which compensation is awarded (e.g. regulatory redress scheme versus court judgment).

Practical Guide to Claiming Interest on Mis‑Sold Compensation

1. Establish the Underlying Mis‑Selling Claim

Before interest can be recovered, you must show the mis‑selling itself:

• review your contract and documentation to identify misleading terms, undisclosed charges, or unsuitable product features;
• gather evidence of payments made and financial detriment suffered; and
• consider whether regulators' redress schemes (such as the FCA car finance scheme) apply to your agreement.

2. Calculate and Document Loss

Document the amounts paid over time and how those payments differed from what would have been paid absent mis‑selling. This provides the basis for principal compensation, on which interest will be calculated.

3. Include Interest in Your Complaint

When you complain to a provider - or to a dispute resolution body like the Financial Ombudsman Service - explicitly state your claim for interest on top of principal compensation. Provide:

• date ranges when excess payments were made;
• amounts paid that represent the mis‑selling cost; and
• your basis for interest (statutory or regulatory formula).

4. Escalate if Necessary

If a provider refuses to include interest in redress, you can escalate to:

• Financial Ombudsman Service for financial products;
• county court or civil claim for mis‑selling and interest; or
• specialist tribunal if applicable.

Regulatory schemes such as the FCA's car finance program already build interest into redress, but individual complaints to providers may still require assertion of this right.

Time Limits and Practical Considerations

Limitation Periods

Time limits for bringing mis‑selling claims (and associated interest) are governed by statutes such as the Limitation Act 1980, often giving six years from the date of loss to initiate claims. Schemes like PPI and car finance compensation have specific deadlines for submissions, which must be respected to recover principal and interest.

Interest recovery claims may need to be integrated within these periods. FOS complaints generally must be submitted within six months of a provider's final response.

Avoiding Third‑Party Fees

Regulators and consumer advice bodies caution against using claims management companies that may charge significant fees (sometimes up to 30%+ of compensation) for facilitating claims that many consumers can pursue directly for free.

Common Questions About Interest Recovery

Is interest always recoverable on mis‑sold compensation?
Interest is commonly recoverable where compensation aims to restore you to the position you would have been in but for the mis‑selling. The specifics depend on whether it is a regulatory redress scheme, ombudsman award or court order.

How is interest calculated?
Interest may be calculated as simple interest, statutory interest or through specific formulae set out in regulatory schemes. The period typically runs from the date of loss or overpayments to the date of compensation payment.

Does the Financial Ombudsman always award interest?
FOS awards generally include interest to ensure claimants are put back in their rightful financial position. The exact rate and period depend on the circumstances of each complaint.

Summary

Interest recovery is a critical aspect of compensation for mis‑sold products and credit in England and Wales. Whether through regulatory redress schemes like the FCA's car finance compensation programme, ombudsman awards in PPI cases, or court judgments in contractual and misrepresentation claims, interest helps to compensate consumers for the time value of money lost due to mis‑selling. Consumers should gather documentation, include interest in their formal complaints, and be mindful of time limits and calculation methods. Acting promptly and asserting your rights can improve your chances of full redress, including both principal and interest components.