Claims for unfair commission arrangements set to increase pressure on motor finance providers

08 February 2024

As Money Saving Expert encourages consumers to claim for potentially unfair motor vehicle credit arrangements, credit providers could face increased operational pressures, says RSM UK.

In January, the Financial Conduct Authority (FCA) announced it was undertaking a review of historic car finance arrangements, and would take regulatory action if widespread misconduct means consumers have lost out. Historically, some retailers and motor finance brokers received commission linked to the interest rate paid by customers. This potentially created an incentive for brokers to sell credit at a higher cost. This was banned by the FCA in 2021, saving consumers an estimated £165m a year.

The FCA has now paused the 8-week deadline for motor finance firms to provide final responses to customer complaints relating to discretionary commission arrangements (DCAs) until September. This will allow the FCA to decide what next steps are required. As a result, consumers will now be allowed up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual six months. 

Zoe Morton, associate director at RSM UK, said: ‘The potential impact of the FCA’s review into discretionary commission arrangements is vast, much like Payment Protection Insurance (PPI) was, so it’s no surprise the FCA has put complaints on hold for now. While motor finance providers and consumers are effectively in limbo until September, companies are still likely to receive an influx of complaints, even those that have never offered DCAs. This places them under huge operational pressure. 

‘As part of the recent new Consumer Duty rules, financial providers must consider the price and value of products and services they are offering to consumers. As many consumers are unaware that brokers were allowed to set varying rates of commission, it’s likely the historic approach to DCAs fails to meet the requirements of the Consumer Duty. The upcoming deadline for ‘closed book’ products and services to meet the Consumer Duty requirements in July 2024 will prompt firms to ensure they comply with their obligation to be transparent about the price and value of products.’

Steps motor finance firms should be taking now:

  • Ensure your complaints handling procedures have been updated to reflect the latest developments from the FCA, including information on websites or in literature.
  • Plan for the operational impact of dealing with these complaints (e.g. resource capacity), even for those firms who never offered DCA. The operational impact in terms of dealing with these could still be sizable. Firms will still have an obligation to respond to consumers, regardless of whether they used DCA.
  • To meet the requirements of the FCA Consumer Duty closed book product deadline in 2024, ensure there is a reflection on any findings communicated by the regulator, so lessons are learned from this.
  • Consider progressing any DCA complaints already received, to ensure cases are adequately prepared in anticipation for the resolution.