Motor finance companies are being advised to make adequate financial provisions for potential customer complaints redress, as the Consumer Duty reporting deadline of 31 July approaches.
Audit, tax, and consulting service provider RMS UK emphasised the importance of documenting these provisions in light of new reporting rules.
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Historically, discretionary commission arrangements (DCAs) linked brokers’ commissions to the interest rates paid by customers, potentially incentivising higher credit costs.
In 2021, the Financial Conduct Authority (FCA) banned DCAs, a move estimated to save consumers around £165m annually.
The FCA is currently reviewing historic car finance arrangements and has paused final responses to DCA-related complaints until September 2024, when the review’s results will be announced.
Industry experts predict that this could lead to £16bn in customer redress for the automotive finance industry.
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By GlobalDataIn April 2024, the FCA reminded motor finance companies of their obligation to maintain adequate financial resources.
As part of the Consumer Duty’s annual reporting, companies must critically assess their customer service performance and prepare for increased customer contact.
Motor finance companies are expected to document financial and administrative provisions for potential customer redress in board reports, ensuring good customer outcomes in line with Consumer Duty rules.
Companies should also update their complaints handling procedures to reflect the latest FCA developments and plan for the operational impact of dealing with any complaints, even if they did not offer DCAs.
Addressing findings from the FCA is crucial for learning lessons and meeting the Consumer Duty requirements.
Companies have been advised to continue investigating DCA-related complaints and be ready for the FCA to lift the pause on dealing with these issues.
Additionally, they should consider the Information Commissioner’s Office (ICO) guidance on responding to data subject access requests, as the regulator expects companies to respond to consumers irrespective of whether their agreement involved a DCA.
The FCA must be notified if any litigation related to motor finance commissions is subject to, or likely to be subject to, an appeal to the High Court or Court of Appeal.
RSM UK associate director Zoe Morton said: “The July 31 deadline for historic products and services to meet the Consumer Duty requirements means firms must ensure their resource capacity can meet this increased demand.
“The potential impact of the FCA’s review into discretionary commission arrangements is vast, much like payment protection insurance (PPI) was. While motor finance providers and consumers are effectively in limbo until September, companies are still likely to receive an influx of complaints, which places them under huge operational pressure.”
