11 January 2024

Motor finance sales are to come under a new investigation by the FCA which has said it will use its powers under the Financial Services and Markets Act to review historical car finance commission agreements and sales.

It follows a high volume of complaints and “significant dispute” between some car finance firms and customers on whether they have breached legal and regulatory requirements.

The FCA’s executive director of consumers and competition, Sheldon Mills, outlined the regulator’s surprise move: “We are taking a closer look a historical discretionary commission arrangements in the motor finance market following a high number of complaints from customers, which are being rejected by firms.

“If we find widespread misconduct, we will act to make sure people are compensated in an orderly, consistent and efficient way.”

The FCA’s move follows last year’s new Consumer Duty guidance, which allowed firms to concentrate on “good outcomes” rather than giving specific legislation.

Today’s news suggests the guidance is not delivering the outcomes intended.

The FCA will set out its next steps in Q3 2024.

Commission ban

The FCA banned discretionary commission arrangements in 2021. It asked firms to review practices and, where harm was identified, to address it.

There have since been a “notably high” number of complaints from customers to motor finance firms claiming compensation for commission arrangements prior to the ban.

The FCA says firms are rejecting “most” complaints, because they believe they have not acted unfairly nor caused their customers loss.

However, the Financial Ombudsman has already considered some complaints – and recently ruled in favour of two complainants against Barclays Partner Finance and Black Horse.

Claims have also been brought in the County Courts, and some have been upheld there too.

The FCA now predicts this may “prompt a significant increase in complaints from consumers to firms and the financial Ombudsman”.

It is therefore immediately pausing, without consultation, the eight-week deadline for firms to respond to customer complaints. The pause will last for nine months.

Customers will also now have 15 months to refer complaints to the Financial Ombudsman, rather than the usual six months.

This is to prevent “disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we assess the issue and determine the best way forward”.

The pause applies to complaints received on or after 17 November 2023, and on or before 25 September 2024.

The FCA adds it is particularly important to act because motor finance is not protected by the Financial Services Compensation Scheme.

More details for consumers about the investigation have been published on the FCA website: http://tinyurl.com/mryr9xz2

Tags: commission, consumer duty, FCA