The Financial Conduct Authority (FCA) is to investigate cases of motor finance firms not paying out compensation to customers over now-banned commission arrangements.
The watchdog announced today (Jan 11) it is using its powers under s166 of the Financial Services and Markets Act 2000 to identify cases of potential wrongdoing by motor finance firms.
In 2021, the FCA banned commission models that gave motor finance brokers and dealers incentive to raise customers’ finance costs. It made the move after discovering ‘serious concerns’ about the way lenders chose to reward car retailers and other credit brokers.
The FCA said there have been a ‘high number’ of complaints by customers to motor finance firms claiming compensation for commission arrangements prior to the ban.
However, firms are rejecting ‘most’ complaints because they feel they have not acted unfairly, ‘nor caused their customers’ loss based on the applicable legal and regulatory requirements’, the FCA said.
It’s believed many new complaints from consumers to firms will now arise after the Financial Ombudsman Service found in favour of the complainants in two recent decisions.
Now, the FCA has said it will review historical motor finance commission arrangements and sales across several firms.
It said that if it finds ‘widespread misconduct’ and ‘that customers have lost out’, it will seek to resolve cases and ensure they receive compensation ‘in an orderly, consistent and efficient way’.
It added that, ‘if necessary, [it will] resolve any contested legal issues of general importance’.
From today, January 11, 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 will last for 37 weeks.
It will apply to complaints received by firms on or after November 17, 2023 and on or before September 25, 2024, the announcement said. It added that if a complaint is received during the 37-week period, the eight-week deadline will expire on November 20, 2024.
Customers will also have up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual six months.
Sheldon Mills, executive director of Consumers and Competition at the 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.’