FCA Seeks to Extend Pause until December 2025 for Firms to Respond to Motor Finance Complaints

Shannon Smith O'Connell

Posted: 31 July 2024

The Financial Conduct Authority opens consultation on its proposed extension of the pause to the eight-week deadline for companies to respond to motor finance complaints associated with discretionary commission arrangement (DCA). In a statement on Tuesday, the FCA suggested that the pause will end on 4 December 2025, instead of the previously announced 25 September 2024.

The agency also proposes for customers to have a longer time to refer their motor finance complaints to the Financial Ombudsman than the usual six months. Under the proposal, they would have until whichever of these dates is later: 29 July 2026, or 15 months from the date the company sends them a final response letter about their complaint.

The FCA’s proposals are outlined on its Consultation Paper 24-15 (CP24/15). Interested parties have until 28 August 2024 to send in their comments and feedback.

The FCA reminds consumers that they can still lodge their complaints to their motor finance providers, and that there are deadlines to keep track of.

FCA’s Next Steps

The financial watchdog explains that, by May 2025, it expects to complete its assessment of the information obtained from motor finance companies and evaluation of the judicial review on the decision of the Financial Ombudsman upholding a DCA case involving Barclays. By then, it intends to proceed with the next steps in their review of the historical use of DCAs in the motor finance sector.

The FCA’s next action in this matter is to consult on a redress scheme, according to the agency, further explaining that the proposed extension of the pause serves as a precautionary measure to ensure there is sufficient time to determine how companies will implement this scheme.

Alternatively, the agency might be consulting again to end the pause earlier if it decides that the companies will have to start dealing with the relevant car finance claims or complaints again in the usual way i.e. there will be no redress scheme.

The motor finance market annually serves more than 2 million consumers, the FCA reported. And as part of its core legal obligation, the organisation will decide its next actions based on how to ensure consumers are appropriately compensated while maintaining effective competition in the market.

Data Collection Challenges and Delays

In January 2024, the FCA announced that it will look thoroughly into the historical use of DCAs in the motor finance sector to determine whether customers have been overcharged. The agency also implemented a temporary pause to the eight-week deadline for lenders to provide a final response to applicable customer complaints.

The FCA said that the pause is put in place so that while they’re assessing the matter and determining the best methods to implement, they can also avoid “disorderly, inconsistent and inefficient” results for consumers as well as “knock-on effects” on the market and firms.

Thousands of records that cover a 14-year period are being assessed by the FCA on this matter. The financial watchdog said that it is “working hard” on how DCAs affected the financial liabilities of people who used finance deals in purchasing cars.

Although companies in the motor finance industry have cooperated, the FCA relates that many others have struggled to provide the information required within the set time due to the following reasons: companies don’t have older data; data is stored in various systems; and data is spread between brokers and lenders.

Due to the delays, the FCA said it may not be able to proceed with the next phase of the investigation by the end of September this year as expected.

Parallel Proceedings

The FCA also stated that the results of Barclays Partner Finance’s judicial review as well as judgments of cases pending in the Court of Appeal may help the agency in determining the next steps of its review.

More specifically, a hearing on the judicial review proceedings initiated by Barclays Partner Finance is expected to start in autumn, and the FCA stated that this review will look into the legal issues that are highly relevant to the agency’s investigation into the motor finance sector. Barclays is challenging the decision of the Financial Ombudsman to uphold a complaint relating to its use of a DCA.

Also, there are motor finance claims-related cases pending in the Court of Appeal, the judgments of which “may be relevant” for FCA in determining its next steps, the financial watchdog relates.

Industry Reactions

While it’s too early to determine whether a redress scheme is necessary, such payments are “more likely” than when the FCA’s review was initiated, according to MoneySavingExpert.com founder Martin Lewis, citing one of the FCA executive directors handling the probe.

FCA’s proposed extension of the pause was “expected,” according to Stephen Haddrill, Director General of the Finance & Leasing Association (FLA). He further stated that it is a “sensible measure” given the timing of relevant proceedings such as the judicial review of the FOS decision in a previous DCA case.

The FLA expresses its support to the FCA’s initiative, as “it is more likely now that they will intervene to deal with DCA complaints” than before, Haddrill said, further stating that the intervention should “ensure market integrity” and “remove the inconsistent outcomes” seen in previous complaints.

Now that the possibility of redress payments are “more likely” as the FCA works through the process, Darren Richards, representing consultancy Broadstone, said that companies “should continue their preparations” on how to deal with the costs of resolving “consumer complaints and the potential total liability.” These costs, he further explained, are “likely to be significant” while the redress scheme “could prove costly and time-consuming.”

The latest FCA update “seems to confirm” that the investigation into the motor finance sector “looks set to rumble on as public and regulatory scrutiny grows,” Richards stated.

Responding to the Consultation

The FCA’s proposed extension of the pause and other timelines relevant to the motor finance claims and complaints are outlined on the organisation’s Consultation Paper 24-15 (CP24/15).

Motor finance companies, trade associations, consumers, and other interested parties are encouraged to send in their comments and feedback by 28 August 2024 through the following:

Through the website’s form
Email: cp24-15@fca.org.uk.
In writing to:

Redress Policy Team

Financial Conduct Authority

12 Endeavour Square

London E20 1JN

FCA’s Review on Motor Finance DCA Issue

As part of its legal obligations to protect consumers and ensure healthy competition in the motor finance market, the FCA has been diligent in digging into the discretionary commission arrangement issue in the motor finance market.

In 2021, the regulatory body banned DCAs in the motor finance market, and thus, effectively removing the incentives for many brokers to increase the customers’ interest rates to have their commission. The agency also instructed companies to review their existing practices, and to address any harm incurred by the customers.

The high number of DCA-related complaints made by customers who are seeking compensation for motor finance deals entered before the ban has prompted the FCA to conduct diagnostic work and intensive review of the past arrangements made by several firms in the market.

The FCA’s investigation, which was announced on 11 January 2024, is pursuant to the “skilled person review” under the s166 of the Financial Services and Markets Act 2000 wherein an independent expert is appointed to look into whether companies are acting in the best interests of their customers, and whether their activities comply with legal and regulatory obligations.

Furthermore, the FCA introduced an approximately-nine-month pause, without consultation in reliance on S138L of FSMA, to the usual eight-week deadline for companies to make a final response to DCA-related complaints from their customers. This is to ensure orderly, efficient and consistent end results for consumers, and domino effects for companies and the market.

The initial pause was set to end on 24 September 2024, which is the same date the FCA would set out its next steps. However, delays in obtaining the necessary information to complete the review has necessitated the FCA to extend the pause until 4 December 2028, and other timelines in the claims/complaints handling process.

Related Blogs

FCA Confirms Ban on Motor Finance Discretionary Commission; Effective January 2021

Financial watchdog FCA gives companies until January 2021 to comply with the ban on discretionary commission schemes used in the UK’s motor finance sector. Minor reforms were also made to the Consumer Credit sourcebook to ensure clarity over commission disclosure.

FCA to Review Historical Motor Finance Commission Deals; Pauses 8-Day Deadline for Firms to Respond to Complaints

The FCA will be investigating historical motor finance deals with discretionary commission agreements, and extends certain deadlines within the complaints handling process.

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