In response to escalating disputes over commission arrangements in the motor finance sector, the Financial Conduct Authority (FCA) has implemented a 37-week pause on the 8-week deadline for motor finance firms to respond to customer complaints.

This move follows the FCA’s 2021 ban on discretionary commission arrangements, eliminating incentives for brokers to increase customer interest rates.

A surge in customer complaints seeking compensation for pre-ban commission arrangements prompted the FCA’s intervention.

Despite firms rejecting most complaints, the Financial Ombudsman Service (Fos) ruled in favour of complainants in two recent decisions, anticipating a rise in consumer complaints to both firms and the Financial Ombudsman.

Also driving up the number of FoS complaints are third-party professionals, or Claims Management Companies (CMCs), targeting people who may have been mis-sold car finance.

The Fos is currently consulting on whether to charge CMC a fee for submitting claims. “We are inviting views on whether and how a charging regime might be implemented, including on the level of any fee itself; the impact on complaint volumes, the potential impact on different groups of complainants, and the lead time required for businesses and professional representatives to be ready.” The consultation ends on 30 January.

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To address the increasing disputes between firms and consumers regarding potential breaches of legal and regulatory requirements, the FCA uses its powers under section 166 of the Financial Services and Markets Act 2000. The regulatory body aims to review historical motor finance commission arrangements and sales across various firms.

If widespread misconduct and consumer losses are identified, the FCA pledges to ensure an orderly, consistent, and efficient settlement process for owed compensation. The temporary pause, effective from 17 November 2023 to 25 September 2024, aims to prevent disorderly outcomes and market disruptions while the FCA assesses the issue.

Considering its statutory objectives to protect consumers, ensure market integrity, and promote competition, the FCA highlights the significance of managing risks, particularly as motor finance lacks protection from the Financial Services Compensation Scheme.

The pause will apply to complaints received by firms during the specified period, allowing firms an extended period to respond when the pause ends. The FCA may extend the pause if necessary to ensure proper handling of complaints and compensation distribution.

Consumers are granted an extended 15-month period to refer their complaints to the Financial Ombudsman, deviating from the usual 6-month timeframe. This extension applies to complaints during specified periods, providing consumers with ample time to seek resolution.

The FCA said it plans to set out its next steps on this issue in Q3 2024.

Sheldon Mills, Executive Director of Consumers and Competition, 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.”

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.”

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