FCA to investigate motor finance and commission payments

The Financial Conduct Authority (FCA) is to investigate historical cases of motor finance companies not paying out compensation to customers for discretionary commission arrangements.

In 2021, the FCA banned discretionary commission, removing the incentive for brokers to increase the interest rate that a customer pays for their motor finance. The FCA asked finance houses to review their practices and, where harm was identified, to address this.

But today it said there have been a “high number” of complaints from customers to motor finance firms claiming compensation for commission arrangements prior to the ban.

It said firms are rejecting most complaints because they consider that they have not acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements.

The Financial Ombudsman Service has considered some complaints rejected by firms and found in favour of complainants in two recent decisions involving Black Horse in April 2016 and Barclays in November 2018.

This said the FCA 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.

The FCA is using its powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.

“If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance.

“In the meantime, we are pausing the 8-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 (approximately 9 months).

“We are introducing the pause without consultation from today.

This pause will apply to complaints received by firms on or after 17 November 2023 and on or before 25 September 2024.

The FCA said the 37-week period – which could be extended – will enable it to analyse the issues and decide what, if any, further action including legal steps are necessary. Consumers will also have up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual 6 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.”