The Financial Conduct Authority (FCA), has announced an extension for motor finance companies to respond to customer complaints concerning overcharging on commission when purchasing a vehicle. This decision comes as the FCA considers a potential redress scheme for affected consumers.
In 2021, the FCA banned incentives for brokers to increase the interest rate paid by customers on their motor finance agreements. Since the banning, numerous customers have filed complaints seeking compensation for unfair commission arrangements that were made prior to its implementation.
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In January, the FCA acknowledged the growing tensions between consumers and motor finance providers regarding discretionary commission arrangements (DCAs) used in financing car purchases and stated its intention to investigate the matter further.
Originally, the FCA had planned to outline its next steps by September. However, the timeline has now been extended to May 2025, as many motor finance companies are encountering difficulties in producing the required data for the FCA to review, which includes records spanning 14 years.
“By then, we expect to have analysed the data we have collected from firms and assessed the outcome of the Barclays judicial review of the Financial Ombudsman’s decision to uphold a DCA complaint,” the FCA stated.
The FCA is considering the possibility of a redress scheme and has decided to pause complaint handling until 4 December 2025 to allow sufficient time to finalise the implementation details.
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By GlobalDataStephen Haddrill, Director General of the Finance & Leasing Association, said:
“We welcome the FCA’s comment that it is more likely now that they will intervene to deal with DCA complaints than when they started the review – such an intervention should remove the inconsistent outcomes we have seen in previous complaints cases and ensure market integrity.
“Motor finance is a vitally important product, valued by millions of customers. We need a solution that identifies and quickly resolves genuine complaints while providing lenders the certainty and clarity to reject the vast number of speculative complaints made by claims management companies.”
Darren Richards, Head of Broadstone’s Insurance, Regulatory & Risk division, said: “… firms should continue their preparations around how they would meet the costs of resolving consumer complaints and the potential total liability.
“These costs are likely to be significant while the redress scheme itself could prove costly and time-consuming. All in all, this latest update from the FCA seems to confirm that this probe looks set to rumble on as public and regulatory scrutiny grows.”
Lloyds Banking Group, one of the largest motor finance providers, has set aside £450 million to cover potential redress costs.
Industry analysts estimate that the total compensation for the sector could reach £16 billion, marking it as the most significant consumer banking scandal since the mis-selling of payment protection insurance (PPI).
FOS opposes Barclays’ judicial review in motor finance mis-selling case
