In 2021, the FCA banned discretionary commission arrangements. This removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. They asked firms to review their practices and, where harm was identified, to address this.
The Financial Ombudsman Service has considered some complaints rejected by firms. It found in favour of complainants in two recent decisions [see here and here]. This is likely to prompt a significant increase in complaints from consumers to firms and the Financial Ombudsman.
Claims have also been brought in the County Courts, some of which have been upheld. So, there is significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements.
Consequently, FCA is using our powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.
If it finds there has been widespread misconduct and that consumers have lost out, it will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance.
In the meantime, FCA is pausing the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will apply to complaints about motor finance agreements where there was a discretionary commission arrangement between the lender and the broker and will last for 37 weeks (approximately 9 months). FCA says that 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. In deciding next steps, FCA will be informed by its statutory objectives to protect consumers, ensure market integrity and promote competition in the interests of consumers.
Consumers will also have up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual 6 months. This extension applies to complaints where the firm had sent a final response in the period beginning with 12 July 2023 and ending with 10 January 2024, or where the firm sends a final response during the period beginning with 11 January 2024 and ending with 20 November 2024.