FCA gives lenders a year to respond to motor finance commission complaints

The Financial Conduct Authority (FCA) has announced that it plans to extend the deadline for lenders to respond to customer complaints regarding car loan mis-selling. A court ruling last month deemed it unlawful for lenders to pay undisclosed commissions to car dealers, leading to a surge in complaints. The FCA is considering extending the response deadline to either 31st May 2025 or 4th December 2025, as lenders like Close Brothers and First Rand prepare to appeal the ruling.

In these cases, the Court decided it was unlawful for the car dealers to receive a commission from lenders providing motor finance without first telling the customer about the commission and getting their informed consent to the payment. To obtain informed consent, the borrowers would have to have been told all material facts that might have affected their decision to enter into the agreements, which, in these cases, included how much the commission would be and how it was to be calculated. The judgment related to fixed commission motor finance agreements as well as DCAs, which the FCA banned in 2021. The two lenders involved in the cases intend to appeal.

It is estimated that the compensation bill could reach £30 billion, creating significant uncertainty for lenders and consumers alike. Meanwhile, Close Brothers has resumed its motor finance lending, updating its processes to ensure full disclosure of commission amounts and compliance verification for credit brokers.

Nikhil Rathi, Chief Executive of the FCA said “The Court of Appeal’s ruling means many customers who bought a car using finance through a dealer could be owed compensation. We want to make sure that consumers who are owed money get it in an orderly way, and that the motor finance market continues to provide competitive deals for the millions of people that rely on it.”

Adrian Dally, the FLA’s Director of Motor Finance & Strategy, said “This is a welcome move, practical help for the industry in the interim as we wait for a Supreme Court ruling.”