What’s happening with motor finance commissions?

Commentary | 01/02/24

The issue of disclosure commission complaints is something we have been following in recent times as part of our work on motor finance. On the 11th January the Financial Conduct Authority (FCA) announced that it would be undertaking work in the motor finance market – but on a different area- discretionary commission arrangements.

The regulator banned these arrangements in 2021 but it was starting to see a high number of complaints from customers to motor finance firms, claiming compensation for commission arrangements prior to the ban. The FCA found that many of these complaints were being rejected because firms do not think they acted unfairly.

As a result, the regulator is using its powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms. They have told us in the interest of time they will appoint the skilled person to carry out the review.

Firms that are part of the s166 project should have been contacted by now. There is likely to be a wider sample of firms that are contacted for some details as the FCA is keen to understand what has happened across the entire sector. The FCA should be in touch with these firms before the end of April.

While the FCA carries out its investigation it has also paused the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will last until late September.

Firms need to alter their processes to ensure the pause is in place and that complainants know what is happening. That includes ensuring all communication about the new deadlines and time limits is clear. There is some useful information for firms on the FCA website.

The investigation is in its early stages, but possible outcomes may include customer redress schemes as well as new guidance for the sector. The FCA has asked firms to save relevant information in case of future complaints or redress schemes.

The Financial Ombudsman Service also recently investigated some complaints that had been rejected by firms. It found in favour of the complainants in two recent decisions which can be viewed here and here. It’s worth firms taking the time to read these to get a sense of the approach the Ombudsman is likely to take in the future. There is no doubt that they will be involved in the project.

It’s clear that there is a lot going on in the motor finance sector and there will be some uncertainty until we see the results of the FCA’s investigation. Experience from other sectors tells us the firms should make sure they are communicating with affected customers by explaining the current changes. Though much of the investigation will relate to historic cases, firms should be focusing on doing the right thing for their customers, particularly against the backdrop of the Consumer Duty.

We will continue to engage with the FCA while the investigation is ongoing. If you have any questions or would like to discuss in more detail please contact the CCTA team.