Credit, Collections & Insolvency News
The Financial Conduct Authority has announced that it begin a a study of the motor finance industry, amid rising tensions between consumers and lenders on discretionary commission arrangements.
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. The FCA says that it asked firms to review their practices and, where harm was identified, to address this.
The FCA says that there has been a high number of complaints from customers to motor finance firms claiming compensation for commission arrangements prior to the ban.
Firms are rejecting most complaints because they consider that they have not acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements.
The Financial Ombudsman Service (FOS) has considered some complaints (rejected by firms). It found in favour of complainants in two recent decisions. 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.
The FCA says it will be using its powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.
The FCA says that 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, it is are 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).
Consumers will now 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.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said “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.
“If we find widespread misconduct, we will act to make sure people are compensated in an orderly, consistent and efficient way.”
In response to the Financial Conduct Authority announcement Stephen Haddrill, Director General of the Finance & Leasing Association said “We welcome today’s announcement as the pause will ultimately provide certainty for firms and customers after a period where speculative and unfounded complaints issued by Claims Management Companies have congested what should be a smooth, prompt and clear process.”
“We will work with the FCA over the coming months to resolve this issue.”
