FCA extends the motor finance complaints pause: there is still work you can do

The Financial Conduct Authority (FCA) has announced it will not be able to set out next steps in its review into past use of discretionary commission arrangements (DCAs) in the motor finance industry by 24 September 2024, as originally planned.

Background

Responding to an increase in complaints about motor finance, the FCA is assessing whether a significant volume of consumers are due redress from motor finance firms because they paid too much for car loans as a result of a DCA.

Complaints about DCAs are being hailed as the new PPI. Whilst previous PPI comparisons failed to materialise the scale of the motor finance market (serving 2 million customers a year) and an increase of 10,000 complaints to the Financial Services Ombudsman (FOS) between May and July 2024 suggests that this time, the analogy may well be made out.

The complaints pause

When announcing its review on 11 January 2024, the FCA paused the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints.

The FCA now proposes to extend the current pause to 4 December 2025 at the earliest.

The consultation

The FCA reports that many firms struggled to supply the necessary data within the original timescale, making the original deadline of 24 September 2024 unworkable. It is now inviting consumers who have taken out motor finance agreements, motor finance providers and others in the industry to consult on 8 separate questions, including whether the respondents agree:

• the complaint response pause should be extended until 4 December 2025;
• the time limit for referring DCA complaints to FOS should be extended until at least 29 July 2026;
• firms should be required to inform complainants of the pause when acknowledging a complaint in writing, and should update customers who have already been made aware of the proposed extension;
• firms and brokers should be required to keep relevant records for longer to account for the pause.

Next steps

The industry must await further guidance until May 2025, at which point the FCA intends to publish its next steps. By then, the FCA expects to have analysed firms’ data and assessed the outcome of Barclays Partner Finance’s JR of FOS’ decision to uphold a DCA complaint, along with other relevant Court of Appeal judgments.

The FCA has indicated that next steps could range from consulting on a redress scheme to asking firms to resume dealing with complaints in the usual way. Early indications are that the FCA is expecting to intervene, and redress seems likely. Whether this will be similar to the PPI scheme introduced following the decision in Plevin, also concerned with secret commission, remains to be seen. Firms involved in that scheme will remember well the time that it took to clear the backlog of complaints which built from a similar pause.

Be proactive

As set out above, under modified DISP Rules, firms have additional time to respond to qualifying motor finance complaints. Customers have extra time to refer their complaint decision to FOS.

Notwithstanding the extended deadlines, firms can continue to review motor finance complaints with a view to understanding trends and taking appropriate action before formal responses are prepared. As a minimum first step, firms need to ensure that the modified DISP Rules (and the extended timescales) apply to any complaint that has been put on pause.

Rather than wait for the next FCA update, it is sensible for firms to be proactive in collating business records on discretionary commission and understanding its commission arrangements over time. Browne Jacobson’ specialist complaints team can help firms ensure that systems and processes are in place to assess complaints so that swift action can be taken when the FCA publishes its next steps.