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The Financial Conduct Authority (FCA) is seeking feedback on proposals to extend the time firms have to respond to motor finance complaints where a non-discretionary commission arrangement was involved. The regulator previously extended the time firms have to respond to motor finance complaints involving a discretionary commission arrangement (DCA).
The FCA’s consultation follows the Court of Appeal’s 25 October judgment in Hopcraft v Close Brothers Ltd, Johnson v FirstRand Bank Ltd, and Wrench v FirstRand Bank Ltd.
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 2 lenders involved in the cases intend to appeal.
Firms who provide motor finance are likely to receive a high volume of complaints in response to the judgment. The proposed complaint handling extension, which the FCA previously said it would consult on, would allow firms more time to handle complaints efficiently and effectively. This would help prevent disorderly, inconsistent and inefficient outcomes for consumers and firms.
The FCA is consulting on 2 options for extending the time firms have to provide final responses to motor finance complaints involving a non-discretionary commission arrangement:
- Until 31 May 2025, reflecting how long it may take to hear whether the Supreme Court has granted permission to appeal. The FCA plans to set out its next steps on DCA complaints in May 2025. Subject to the outcome of any Supreme Court application, the FCA would update on motor finance non-DCA commission complaints at the same time.
- A longer extension until 4 December 2025, to align with the current rules for motor finance firms dealing with discretionary commission complaints.
Most car finance deals arranged through a dealer involve commission. Anyone who is not satisfied with their car finance deal should complain. People who were previously told their motor finance agreement did not involve a DCA, may wish to make a new complaint. The FCA has updated its information for consumers on its website.
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.’
Firms will need to use the additional time provided to ensure they have the resources to investigate and issue final responses to complaints at the end of the proposed extension. As has begun already, firms should also consider whether to make any financial provisions. The focus of the Court of Appeal decision was common law and equitable principles, rather than FCA rules. Firms authorised by the FCA must meet wider legal requirements as well as regulatory rules.
The FCA is also consulting on giving consumers more time to refer motor finance commission complaints not involving a DCA to the Financial Ombudsman Service.
FCA review into historical DCAs in motor finance
In January this year, the FCA launched a review of historical motor finance DCAs.
The review seeks to understand if there was widespread misconduct related to DCAs before the 2021 ban, if consumers have lost out and, if so, the best way to make sure appropriate compensation is paid in an orderly, consistent and efficient way.
Alongside the review, motor finance firms were given more time to provide final responses to complaints about motor finance where a DCA was involved, and consumers more time to refer their complaints to the Financial Ombudsman. This was to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while the FCA reviewed the issue and determined the best way forward.
In September, the FCA further extended this until 4 December 2025. This was because it had taken longer than expected to get the data needed for the review. Before deciding its next steps, the FCA also wanted to take account of relevant court decisions. These included the recent Court of Appeal judgment and the judicial review, heard in October 2024, by Barclays Partner Finance of a Financial Ombudsman decision relating to a DCA in a motor finance agreement. The FCA is awaiting the outcome of the judicial review judgment.
The FCA is considering what impact the Court of Appeal’s judgment has on the review into historical DCAs in motor finance, including for both its timeline and scope. This is likely to be influenced by any decision of the Supreme Court to hear an appeal and, should it do so, when it makes a final judgment.
The FCA will write to the Supreme Court asking it to decide quickly whether it will give permission to appeal and, if it does, to consider it as soon as possible, given the potential impact of any judgment on the market and the consumers who rely on it. If permission to appeal is granted, the FCA will consider intervening to share its expertise to assist the Court.
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