Motor Finance Complaints
The Financial Conduct Authority has announced a review of “historical motor finance commission arrangements and sales across several firms,” following a number of complaints from customers and upheld FOS complaints. The regulator has also paused timeframe rules for complaints materially related to motor finance discretionary commission arrangements.
The FCA’s diagnostic work will aim to assess whether the discretionary commission arrangements between lenders and credit brokers have led to customers paying “too much for their car loans” and whether redress is now necessary. The potential impact on lenders is huge, with investment bank RBC calculating that it could cost the sector between £2bn and £8bn. The scope of the review will cover around £300bn in total credit.
The FCA are also considering whether redress provided via the usual consumer complaints route is appropriate, or whether an alternative, such as an industry-wide consumer redress scheme or applying to the Financial Markets Test Case Scheme is needed.
Given this, the FCA has implemented temporary complaint handling rules for complaints about motor finance agreements involving a discretionary commission arrangement (DCA). Firms will not need to close complaints within the 8-week time limit. The pause on this time limit will last for 37 weeks, until 24 September 2024, and apply to complaints received on or after 17 November 2023 and on or before 25 September 2024. The time limit for consumers to refer these complaints to the FOS will increase from 6 to 15 months.
In part, the pause is due to “the trend of firms rejecting almost all DCA complaints (…) because they dispute that they have caused harm to consumers.” The FCA banned discretionary commission arrangements in January 2021, following concerns that the wide discretion open to brokers to set or adjust the customer’s interest rate was harmful to consumers. The FCA says it expected lenders to review systems and controls following the ban and address any harm or potential harm identified.
The FCA acknowledges that a “significant number” of motor finance arrangements post 2007 may have involved DCAs.
The FCA notes the discrepancy between the view of firms that dispute harm, and the views of consumers. In particular, it refers to a significant increase in DSARs, which it says is often a precursor to complaints. At the beginning of December 2023, around 10,000 motor finance commission complaints had been referred to the FOS. The FOS’ initial decisions are in favour of the customer. The effect is two-fold; upheld decisions have highlighted the potential of findings of actual harm to consumers, and the publication of the decisions have publicised the potential of redress to other consumers, who may in turn submit complaints.
The FCA will now use its powers under section 166 of the Financial Services and Markets Act 2000 to review:
Whether there has been a widespread failure to comply with the 2021 ban.
How many customers are likely to be owed redress, and the total amount of that redress.
Whether the FCA needs to take action to ensure redress is given in an “orderly, consistent and efficient way”.
Whether the FCA needs to support the FOS, given the number of complaints it could receive if firms continue to reject the complaints.
The report will consider how a sample of firms carried out sales before the 2021 ban. The subject of the review hints at the possibility that some of the complaints relate to agreements made following the ban, but that the FCA expects that most of the complaints will relate to agreements made before the ban.
The FCA will set out its next steps by 24 September 2024 at the latest.
What do affected firms need to do?
Affected motor finance firms must ensure that they comply with the rules in Appendix 1 of the Policy Statement. Firms should carefully review their compliance with the 2021 ban. They may also choose to provide feedback to the FCA to help inform the regulator’s final decision. Personal Contract Hire agreements are not covered by the FCA’s rules.
The FCA is pausing the usual 8-week time limit on completion of complaints. The updated rules will be added to DISP and will apply to complaints about motor finance agreements involving a DCA, taken out before 28 January 2021, which were received by the firm between 17 November 2023 and 24 September 2024.
If the DCA is clearly not material to the complaint, then the FCA understands that although the subject of the complaint may include a DCA, if it is not relevant, then firms are encouraged to provide a final response to the customer within the usual timeframe of 8 weeks.
The pause will mean that complaints logging is critically important. Once the pause is completed on 25 September 2024, firms will need to know how many weeks remain on the complaint’s response period. For example, if a complaint is received three weeks before the start of the pause (11 January 2024) then following the pause five weeks remain for investigation and final response (25 September to 30 October 2024).
Firms must acknowledge complaints, as usual. The acknowledgement must include an explanation of the pause to the time limit rules. If affected complainants have already been sent an acknowledgement, firms must “promptly inform the complainant of the pause and the reason for it.”
DISP 1.4.1R, requiring firms to assess and investigate complaints promptly and diligently, remains in force – this means firms should continue to collect and assess evidence to support their eventual resolution.
The pause does not prevent firms from issuing the final response. If firms do so, or make offers of redress, then they must ensure that the usual requirements in DISP are complied with.
Firms must tell complainants about the pause, in line with the requirements around keeping complainants informed. Complaint handling procedures must be updated and published; the FCA have shared information on their website to support this.
Regular, engaging training on identification of complaints and support of customers making a complaint is only getting more important. Our online Complaints Handling course has been updated for 2024 and provides everything that your staff needs to know to identify and investigate complaints, and support customers in an easy to understand, relatable way. Priced at £20, the course is accessible at the user’s convenience and provides a certificate upon successful completion.