Understanding Car Finance Complaint Handling Rules: What the FCA’s New Proposal Means for You

The Financial Conducts Authority’s (FCA) new proposals on addressing car finance complaints mark a significant development for consumer protection in the United Kingdom’s motor finance sector. Recent industry happenings and court rulings have pushed the FCA to reconsider its stance on handling complaints related to auto lending, especially those related to harmful commission structures. 

Find out what’s changing and why these amendments matter. Here’s everything you need to know about what these modifications mean for you and how they can shape your next steps, particularly if you’re concerned about mis-sold motor contracts.

Why are Car Finance Complaints a Huge Issue?

For customers affected by car finance mis-selling, these regulatory changes could create opportunities for them to reclaim money they overpaid by filing compensation claims. The FCA’s move to address longstanding concerns, even those dating back to 2007, enables the watchdog to strengthen consumer rights, improve transparency, and create a fairer market. 

“How FCA’s Proposed Changes Impact Car Finance Discretionary Commissions” for insights

So, what’s the deal with car finance complaints? The crux of the matter is mis-selling. Car finance mis-selling happens when consumers are given financing agreements that misrepresent the impact on the client. These issues have become increasingly prevalent, with many consumers facing challenges in the complaint process. 

Significant Rise in Motor-Related Complaints

The Financial Ombudsman Service (FOS) has observed a jump in filings that indicate widespread dissatisfaction among consumers. It saw a 40% rise in complaints during Q1 and Q2 of 2024, with 133,019 cases. 

“Car Finance Issues: Common Challenges Faced by Consumers in Complaints” for a deeper dive into these issues

According to the FOS, there were 21,441 new complaints related to hire purchase agreements in the 2023/24 financial year, underscoring growing concerns over motor finance products. 

Now, this can occur in different ways, including overly complicated car finance products such as hire purchase agreements, leaving consumers unclear about terms and other pertinent details. The end result is misunderstandings and dissatisfaction, leading to complaints. The motor credit category also experienced a surge in claims, with the FOS reporting 51,953 new complaints related to motor finance. 

At the centre of the current scandal is a combination of both. Mis-sold contracts are related to hidden expenses incurred by customers due to improperly disclosed commission arrangements baked into their contracts. 

This primarily benefits dealers, who also serve as brokers between consumers and lenders. According to findings, dealers receive commissions from lending firms in the form of commissions, to which customers did not provide informed consent. 

Per consumer rights and business fiduciary duties, such practices undermine trust and leave consumers bearing financial burdens they were not adequately informed about. 

Understanding Car Finance Commission Structures

Under mis-selling claims, commission structures are taking the heat because of how prevalent they are. There are two types of commission arrangements that consumers see: discretionary commission arrangements (DCAs) and non-DCAs like fixed rates. 

DCAs are additional charges that allow dealers to earn more when they impose an interest rate hike on car finance contracts. These commissions change depending on the dealer and lender’s arrangement. Most of the time, consumers are not aware of the added costs they incur because brokers often do not disclose such information. 

Meanwhile, non-DCAs are fixed fees that dealers receive from lenders, regardless of whether or not they applied an increase in interest on their customer’s loan. Unlike DCAs, fixed commissions offer more transparency, which minimises the potential for hidden charges.

For further details on these arrangements, readers can refer to the cluster article “A Guide to Understanding Discretionary Commission Arrangement in Car Finance.”

Expanding Coverage for Claims

However, the recent Court of Appeal ruling on the landmark cases against MotoNovo and Close Brothers expanded the coverage of the car finance mis-selling complaints. 

The case by Hopcraft and Wrench tackled completely undisclosed commissions, which resulted in the court ruling in favour of consumers, with lenders being the principal offenders. Johnson’s case, which tackled partially undisclosed terms, also gained a favourable response from the court, deeming lenders as accessories to such offences. 

This decision expanded the scope of car finance claims, not only in the eyes of the law but also in terms of industry regulations. The FCA has widened the coverage claims to include both DCAs and non-DCAs, which enables more consumers to seek compensation in case of misleading or unfair charges. 

“Car Finance Compensation: Key Facts You Need to Know about Complaint Eligibility” for more information on compensation eligibility

Consumer Rights and the New FCA Policies

The FCA’s move is fuelled by the Consumer Rights Act, which ensures that business-to-consumer (B2C) transactions meet essential standards. An example of this is during the car purchasing process, where the vehicle must be of satisfactory quality, defect-free functional, and safe for usage. This rule also covers the finance agreement, which must clearly provide essential details and costs. 

The Consumer Protection Act of 1987 also offers additional protections, such as allowing customers to seek compensation for defective products, especially those resulting in property damage or personal injury. 

The FCA’s New Proposed Regulations

The watchdog has been taking significant steps for years. One of its most substantial moves was in 2021 when it announced a ban on DCAs in an effort to curb car finance mis-selling. By banning these practices, the FCA sought to eliminate the unfair advantage enjoyed by dealers and lenders and preserve the integrity of the motor industry.

The regulator required companies to assess their DCA-related procedures after the ban. Any consumer harm uncovered during these reviews had to be promptly rectified.

Moreover, in order to evaluate possible misbehaviour and its impact on customers, the watchdog carried out its diagnostic work in accordance with Section 166 of the Financial Services and Markets Act of 2000. This entailed looking into DCA practices across several lending institutions. 

The Role of Diagnostic Work in Addressing Harm from Car Finance Arrangements

The main goal of this move is to ensure that affected customers will be compensated through a systematic, effective, and transparent process. Any legal issues found during this problem can entail settling with victims. By preserving market integrity and safeguarding consumers, the agency sought to rebuild trust within the motor financing segment and its customers, which serves as the lifeblood of the vehicle sector. 

Key FCA Proposals and Their Impact

To address ongoing issues, the FCA introduced temporary measures that pause the typical 8-week deadline for final responses to DCA-related claims. This allows the FCA and involved firms to thoroughly follow the diagnostic procedure and conduct an adequate evaluation of each case before responding. 

“FCA Car Finance Regulation: The Impact of the FCA’s Extension on the Car Finance Industry” for insights

The agency’s consultation paper dubbed CP24/15 puts a premium on transparency and fairness in motor finance agreements, especially those with DCAs. It is responsible for extending the deadline from the initial 8-week period to 31 May 2025 or 4 December 2025. Aside from providing more time for firms, it also ensures that consumers waiting for resolutions are not left in limbo while the sector makes way for the new regulations. 

“Car Finance Consumer Rights and Protections: Key Takeaways from CP24/15 for Complaints” for further insights on consumer rights.

During the adjustment period, UK drivers are given the chance to file complaints with their motor credit brokers or finance providers. They may also find legal representatives should they find the need to pursue legal action, like the consolidated landmark cases of Hopcraft, Wrench, and Johnson. 

One of the most recent developments in this effort is the Appeal Court’s ruling on the aforementioned cases, which now expanded the coverage from just discretionary commissions to both DCAs and non-DCAs.

What Does this Mean for You?

Consumers get a significant advantage with these proposals. Under the new timeline, you will have more time to escalate their concerns to a higher agency than just their motor finance provider. 

“The Timeline of PCP Complaints & Claims: Key Developments in Consumer Rights” for more on initiating a claim

Say, you receive a final response on 1 January 2025, you have 15 months from that date to file a case with the car finance ombudsman. If not, the latest date you can approach the FOS or file a complaint will be 29 July 2026. This way, customers have a longer timetable to pursue their car finance complaints, potentially leading to fairer and more consistent results.

Aside from the adjusted timeline, companies will be required to maintain and preserve records related to motor finance complaints lodged against them. They will also be accountable for the record-keeping of civil claims. Those who previously rejected complaints that did not include DCAs are also expected to accept new complaints about the same issue. 

Car Finance Complaints: Next Steps

If you believe your car finance contract is affected by harmful commission structures, your next move is to assess the document to find points for complaints. You may be eligible for claims if the commission deal is not disclosed inadequately or not at all. Any sign of unfair terms, biased advice in favour of the dealer, or higher-rate offers than necessary are also grounds for compensation. 

“Claim Car Finance: A Step-by-Step Guide to Filing a Car Finance Complaint” for detailed guidance on the claims process

Refund or redress can fall anywhere over the £1,000 line. On average, drivers can receive £1,500 to £1,600, with some reaching more than the upper range. 

Filing a complaint can be pretty straightforward. After verifying if you have grounds to file a claim, the next step is to contact your lender or broker and state your grievance. It is better if you have all relevant details and documents, such as the contract itself, policy number, vehicle registration number, and pertinent dates. 

After submitting your complaint, the firm should acknowledge receipt, start evaluating the situation, and issue a response by the proposed deadline, which may be 31 May 2025, 4 December 2025, or 45 weeks after.

Any further dissatisfaction regarding the response can be escalated to the FOS for a deeper look. Make sure to have all documentation for easy filing. You are eligible for a complaint whether you have previously received a rejection from your provider or not.

Car Finance Complaints Impacts and Takeaway

The FCA’s recent proposals to extend the timeline and cover both DCAs and non-DCAs are good moves toward a more trustworthy motor market. Consumers now have more time to file complaints with providers or escalate their concerns to the car finance ombudsman, strengthening their rights and protections. 

Stay informed about your rights and take action if you believe you’ve been mis-sold car finance. 

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