On 11 January 2024, the FCA published Policy Statement PS24/1 setting out temporary changes to the handling rules for motor finance complaints. The new rules have been introduced in response to a high number of complaints from customers to motor finance firms claiming compensation due to historical, potentially unfair, commission arrangements. By introducing these changes, the FCA hopes to ensure its approach to providing any redress that is due to these customers leads to the right outcomes for consumers and the effective functioning of the motor finance market.
Background to the changes
In its announcement, the FCA notes that motor finance firms have been rejecting most complaints from customers because they consider that they have not acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements. Some of the complaints rejected by firms have been considered by the Financial Ombudsman Service (FOS), which recently issued two decisions upholding discretionary commission arrangement (DCA) complaints (see here and here). The FCA expects that this will prompt a significant increase in complaints from consumers to firms and the FOS. Claims have also been brought in the County Courts, some of which have been upheld.
What action is the FCA taking?
The FCA is therefore urgently assessing whether the historic use of DCAs means a significant number of individuals could be due redress (compensation) from motor finance firms because they paid too much for their car loans. It is doing this by using its powers under section 166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms.
Under section 166, the FCA has the power to appoint a ‘skilled person’ to produce a report on any issue, if it is relevant to the carrying out of the FCA’s statutory functions. The relevant firm will then be required to provide all reasonable assistance to the skilled person, including any information that the skilled person considers necessary or desirable to carry out their task.
The skilled person will produce a report on how a sample of firms carried out motor finance sales before the FCA introduced its ban on DCAs in 2021, including sales before the FCA took on the regulation of motor finance and other consumer credit firms in April 2014. The review will involve the skilled person looking back over time at a large sample of customer files to review the arrangements between lenders and brokers, and the information provided to consumers at the point of sale, including how commission was disclosed. The findings will help the FCA to decide whether consumer complaints should continue, or if an alternative approach is needed to resolve the issue in an orderly, consistent and efficient manner.
If it finds there has been widespread misconduct and that consumers have lost out, the FCA 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.
What changes are being introduced now?
Whilst it carries out its review and assessment, the FCA is introducing the new rules to:
- Pause, for 37 weeks, the requirement on firms provide a final response to a complaint about motor finance agreements with DCAs within 8 weeks of receiving the complaint.
- Extend the time consumers have to refer DCA complaints to the Financial Ombudsman Service (FOS) from 6 to 15 months, if the firm sent its final response to the complaint within the period specified in the rules.
Next steps
The rules entered into force on 11 January 2024, meaning that firms do not need to provide final responses to DCA complaints within 8 weeks during the period 17 November 2023 to 25 September 2024. The FCA does, however, encourage firms to continue to progress DCA complaints where possible during this period by continuing to investigate and collect evidence to help with their eventual resolution.
The FCA intends to communicate a decision on its next steps by 24 September 2024 at the latest, including whether it will extend the pause or make other changes.
Firms affected by the newly announced changes must ensure they comply with all the rules in Appendix 1 that are relevant to their business. The FCA is inviting feedback on the impact of the rules and its approach to the provision of redress for harm caused by DCAs more generally, until (and including) 11 March 2024.
More information for consumers is available on the FCA website.
Statement from the FOS
The FOS has issued a statement regarding the announcement, noting that it has heard from more than 10,000 people who fear they were charged too much for their finance and knows many more who are “waiting in the wings”. The statement welcomes the FCA’s decision to assess the issue further and confirms that, in the meantime, the FOS is totally committed to continuing to investigate cases with its service. Anyone that is concerned about a car loan and unhappy with how a firm has responded is reminded that they can go directly to the FOS’s free, independent service to have their complaint investigated.