A continued period of regulatory scrutiny in relation to the motor finance industry

Broker ability to adjust interest rates is granted by Discretionary commission arrangements. The incentive for brokers to charge customers a higher interest rate for their motor finance was banned by the FCA in 2011. The Financial Ombudsman Service has found in favour of customers who have complained about DCAs in the past, and this has led to a rise in the number of complaints from customers.

The FCA noted in its announcement that there have been a lot of compensation claims related to such arrangements. The FOS has made two decisions, both in favour of the person who made the complaint.

The s166 powers of the FCA were used to appoint a skilled person to review historical sales of motor finance agreements involving DCAs. We know that this review will cover 10 motor finance providers.

What steps has the FCA taken?

The skilled person will support the work of the FCA by assessing practices within individual firms that may have been influenced by DCAs. The most appropriate approach to ensure that those who are owed compensation receive an appropriate settlement will be determined if the FCA discovers that there has been widespread misconduct. This could involve a consumer scheme under the Financial Services and Markets Act. The next steps by the end of September is what the FCA wants to communicate.

The new rules for handling complaints about motor finance agreements involve a DCA were issued by the FCA. The rules are effective immediately and allow motor finance firms to give a final response to customer complaints. The rules allow the FCA to complete its diagnostic work and decide what to do next, if any, during a 37 week period. The pause will apply to complaints received after 17 November 2023 and before 25 September 2024.

The rules give consumers more time to refer complaints about DCAs to the FOS. Consumers will have up to 15 months to refer their complaint to the FOS, instead of 6 months. The firm's final response to the complaint between July and November of 2020 is not included in this extension.

What should firms do?

Firms must make sure that they comply with the new rules that apply to their business. Updating information on their websites, as well as notifying consumers about the changes to time limits for complaint handling and FOS referrals, is included in this.

The FCA has paused the complaints time limit, but it is encouraging firms to continue progressing their complaints by continuing to investigate and collect evidence.

The skilled person review is being done by the FCA. All firms in the motor finance industry should have plans and resources in place to respond to any complaints or regulatory interventions.

There is a continued period of regulatory scrutiny.

The sector has been under increased regulatory scrutiny. Many lenders have been undertaking reviews and exercises under close supervision by the FCA, including through the use of its s166 powers, in relation to their handling of customers in financial difficulty in the aftermath of the COVID pandemic and the cost of living crisis.

GAP insurance is one area of interest for the FCA. In September of 2023, it wrote to insurers stating that they must take immediate steps to prove that customers are getting a fair deal in light of analysis that only 6 percent of the amount paid in premiums is paid out in claims.