The Financial Conduct Authority (FCA) is temporarily suspending the 8-week deadline for motor finance firms to respond to relevant customer complaints, specifically those involving discretionary commission arrangements.
This pause, lasting 37 weeks, aims to prevent disorderly outcomes while the issue is under assessment.
The pause, effective immediately and without prior consultation, will be applied to complaints received by firms between November 17, 2023, and September 25, 2024.
“The 37-week period will enable us to analyse the issues and decide what, if any, further action including legal steps are necessary. We may need to extend the pause if more time is required to make sure [complaints are dealt with properly and] consumers who might be owed compensation receive it,” the FCA said.
Consumers will have an extended period of 15 months to refer their complaints to the Financial Ombudsman, deviating from the usual 6-month timeframe. This extension applies to complaints within specific timeframes, ensuring a fair and accessible process for consumers seeking resolution.
“We are taking a closer look at historical discretionary commission arrangements in the motor finance market following a high number of complaints from customers, which are being rejected by firms,” said Sheldon Mills, executive director of consumers and competition at the FCA. “If we find widespread misconduct, we will act to make sure people are compensated in an orderly, consistent, and efficient way.”
The FCA initiated a comprehensive review of the UK motor finance sector following the ban on discretionary commission arrangements in 2021. The prohibition aims to eliminate brokers' incentives to inflate interest rates on motor finance for customers, prompting firms to reassess their practices and address any identified harm.
According to the FCA, a notable uptick in customer complaints has ensued, with individuals seeking compensation for commission arrangements predating the ban. Firms, however, are rejecting a majority of these complaints, arguing that their actions align with legal and regulatory requirements and have not caused customer losses.
The Financial Ombudsman Service has stepped in to address complaints dismissed by firms, recently ruling in favour of complainants in two instances, which could potentially lead to an increased volume of consumer complaints to both firms and the Financial Ombudsman.
Simultaneously, disputes have arisen in county courts between some firms and consumers regarding alleged breaches of legal and regulatory obligations in motor finance arrangements. To address these concerns, the FCA is leveraging its authority under s166 of the Financial Services and Markets Act 2000 to scrutinise historical motor finance commission arrangements and sales across multiple firms.
“If we find there has been widespread misconduct and that consumers have lost out, we 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,” the FCA said.
The FCA plans to communicate further steps on this matter in Q3 2024.
