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What has happened? 

In January 2021, the FCA banned discretionary motor finance commission arrangements (see the details of this here).

This ban removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. The FCA asked firms at the time to review their practices and, where harm was identified, to address this.

What are the key points now arising from the ban?

The FCA has now identified that there have been a high number of complaints made by customers to motor finance firms claiming compensation for commission arrangements in place prior to the ban and that firms are rejecting most complaints because they consider that they have not acted unfairly or caused their customers loss based on the applicable legal and regulatory requirements.

In addition, the Financial Ombudsman Service has considered some complaints rejected by firms and has found in favour of complainants in two recent decisions. This is likely to prompt a significant increase in complaints from consumers to firms and the Financial Ombudsman.

Claims have also been brought in the County Courts, some of which have been upheld. It is apparent that there is a significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements.

The FCA now reports that it is using its powers under s166 of the Financial Services and Markets Act 2000 to review historic motor finance commission arrangements and sales across several firms. If it finds that there has been widespread misconduct and that consumers have lost out, it will identify how best to make sure customers who are owed compensation receive an appropriate settlement in an orderly, consistent, and efficient way and, if necessary, to resolve any contested legal issues of general importance.

In the meantime, the FCA is pausing the eight-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will apply to complaints about motor finance agreements where there was a discretionary commission arrangement between the lender and the broker and it will last for 37 weeks. The pause is introduced without consultation and is effective from 11^th January 2024.

This is to prevent disorderly, inconsistent, and inefficient outcomes for consumers and knock-on effects on firms and the market while the FCA assesses the issue and determines the best way forward.

This pause will apply to complaints received by firms on or after 17 November 2023 and on or before 25 September 2024. For example, if a firm had been dealing with a complaint for three weeks at 11 January 2024, the time limit for responding to the complaint would be paused for 37 weeks until 25 September 2024. When the pause ends, the firm would have the remaining five weeks to provide its final response. If a complaint is received during the 37-week period, the eight-week deadline will expire on 20 November 2024.

The 37-week period will enable the FCA to analyse the issues arising and decide what, if any, further action, including legal steps, is necessary.

Consumers will also have up to 15 months to refer their complaint to the Financial Ombudsman rather than the usual six months. This extension applies to complaints where the firm had sent a final response in the period beginning on 12 July 2023 and ending with 10 January 2024, or where the firm sends a final response during the period beginning on 11 January 2024 and ending with 20 November 2024.

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

How can we help you? 

Thistle Initiatives has supported lending firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting firms as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your motor finance commission arrangements, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.