REG - Financial Conduct - FCA motor finance consultation

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21/11/2024 08:15

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RNS Number : 1396N  Financial Conduct Authority  21 November 2024

FCA PROPOSES TO EXTEND THE TIME FIRMS HAVE TO HANDLE COMPLAINTS RELATING TO
MOTOR FINANCE COMMISSION

 

The FCA is seeking feedback on proposals to extend the time firms have to
respond to motor finance complaints where a non-discretionary commission
arrangement was involved. The regulator previously extended the time firms
have to respond to motor finance complaints involving a discretionary
commission arrangement (DCA).

 

The FCA's consultation follows the Court of Appeal's 25 October judgment in
Hopcraft v Close Brothers Ltd, Johnson v FirstRand Bank Ltd, and Wrench v
FirstRand Bank Ltd.

 

In these cases, the Court decided it was unlawful for the car dealers to
receive a commission from lenders providing motor finance without first
telling the customer about the commission and getting their informed consent
to the payment.   To obtain informed consent, the borrowers would have to
have been told all material facts that might have affected their decision to
enter into the agreements, which, in these cases, included how much the
commission would be and how it was to be calculated.   The judgment related
to fixed commission motor finance agreements as well as DCAs, which the FCA
banned in 2021. The 2 lenders involved in the cases intend to appeal. 

 

Firms who provide motor finance are likely to receive a high volume of
complaints in response to the judgment. The proposed complaint handling
extension, which the FCA previously said it would consult on
(https://www.fca.org.uk/news/statements/fca-consult-extending-time-motor-finance-firms-handle-commission-complaints)
, would allow firms more time to handle complaints efficiently and
effectively. This would help prevent disorderly, inconsistent and inefficient
outcomes for consumers and firms.

 

The FCA is consulting on 2 options for extending the time firms have to
provide final responses to motor finance complaints involving a
non-discretionary commission arrangement: 

·    Until 31 May 2025, reflecting how long it may take to hear whether
the Supreme Court has granted permission to appeal. The FCA plans to set out
its next steps on DCA complaints in May 2025. Subject to the outcome of any
Supreme Court application, the FCA would update on motor finance non-DCA
commission complaints at the same time.

·    A longer extension until 4 December 2025, to align with the current
rules for motor finance firms dealing with discretionary commission
complaints.

 

Most car finance deals arranged through a dealer involve commission. Anyone
who is not satisfied with their car finance deal should complain. People who
were previously told their motor finance agreement did not involve a DCA, may
wish to make a new complaint.  The FCA has updated its information for
consumers on its website
(https://www.fca.org.uk/consumers/car-finance-complaints) .

  

Nikhil Rathi, chief executive of the FCA said:

'The Court of Appeal's ruling means many customers who bought a car using
finance through a dealer could be owed compensation.   We want to make sure
that consumers who are owed money get it in an orderly way, and that the motor
finance market continues to provide competitive deals for the millions of
people that rely on it.'

 

Firms will need to use the additional time provided to ensure they have the
resources to investigate and issue final responses to complaints at the end of
the proposed extension. As has begun already, firms should also consider
whether to make any financial provisions. The focus of the Court of Appeal
decision was common law and equitable principles, rather than FCA rules. Firms
authorised by the FCA must meet wider legal requirements as well as regulatory
rules. 

The FCA is also consulting on giving consumers more time to refer motor
finance commission complaints not involving a DCA to the Financial Ombudsman
Service.

FCA review into historical DCAs in motor finance

In January this year, the FCA launched a review
(https://www.fca.org.uk/news/statements/fca-undertake-work-motor-finance-market)
 of historical motor finance DCAs.  

The review seeks to understand if there was widespread misconduct related to
DCAs before the 2021 ban, if consumers have lost out and, if so, the best way
to make sure appropriate compensation is paid in an orderly, consistent and
efficient way.

Alongside the review, motor finance firms were given more time to provide
final responses to complaints about motor finance where a DCA was involved,
and consumers more time to refer their complaints to the Financial Ombudsman.
This was to prevent disorderly, inconsistent and inefficient outcomes for
consumers and knock-on effects on firms and the market while the FCA reviewed
the issue and determined the best way forward.

In September, the FCA further extended this
(https://www.fca.org.uk/news/statements/extension-motor-finance-complaint-handling-pause-confirmed)
 until 4 December 2025. This was because it had taken longer than expected
to get the data needed for the review. Before deciding its next steps, the FCA
also wanted to take account of relevant court decisions. These included the
recent Court of Appeal judgment and the judicial review, heard in October
2024, by Barclays Partner Finance of a Financial Ombudsman decision relating
to a DCA in a motor finance agreement. The FCA is awaiting the outcome of the
judicial review judgment.  

 

The FCA is considering what impact the Court of Appeal's judgment has on the
review into historical DCAs in motor finance, including for both its timeline
and scope. This is likely to be influenced by any decision of the Supreme
Court to hear an appeal and, should it do so, when it makes a final
judgment.

The FCA will write to the Supreme Court asking it to decide quickly whether it
will give permission to appeal and, if it does, to consider it as soon as
possible, given the potential impact of any judgment on the market and the
consumers who rely on it. If permission to appeal is granted, the FCA will
consider intervening to share its expertise to assist the Court.

 

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