The FCA Motor Finance Review Is Underway – How Does This Affect Those Involved?

Update – FCA’s Initial Findings Due To Be Delayed

The initial findings of the FCA’s investigation, which were due to be released in September 2024, have now been delayed to May 2025. When released these finds should shed light on various aspects of this complex issue and provide insights into the actions that may be required to address them.

Read the full update >

At the start of this year, the Financial Conduct Authority (FCA) initiated a comprehensive review into motor finance, igniting speculation about the potential implementation of a significant redress scheme akin to the payment protection insurance (PPI) debacle.

Central to the current discourse are discretionary commission arrangements (DCAs), which played a key role in approximately three-quarters of all car financing deals over the period from 2007 to 2020. Notably, the FCA took decisive action by prohibiting DCAs in 2021, signalling a significant shift in regulatory focus.

In January 2024, the FCA issued a statement underlining its commitment to addressing any instances of widespread misconduct that may have disadvantaged consumers. It emphasised its resolve to ensure that affected individuals receive appropriate settlements, highlighting the gravity of the situation.

Under the authority vested in it by s.166 of the Financial Services & Markets Act, the FCA is empowered to conduct a thorough review of historical motor finance commission arrangements and sales across multiple firms. This comprehensive investigation aims to shed light on the practices adopted by individual firms in response to the incentives stemming from DCAs and their impact on consumers.

In a bid to streamline the complaints handling process, the FCA has introduced temporary rules around DCAs. These rules afford motor finance firms extended response times to complaints and provide consumers with an expanded window to lodge their grievances. Notably, these measures apply to complaints received by firms between November 17, 2023, and September 25, 2024.

What do firms need to do?

Firms are required to ensure compliance with the updated rules outlined in the Dispute Resolution: Complaints Sourcebook (DISP) that concern their operations. This encompasses the revision of consumer-facing information regarding internal complaints handling procedures, including updates on their websites, and informing complainants about adjustments to time limits for handling complaints and referrals to the Financial Ombudsman Service (FOS).

While the Financial Conduct Authority (FCA) has temporarily suspended the time limit for complaints, it is encouraging firms to continue addressing complaints related to discretionary commission arrangements (DCAs) to the best of their ability. This involves ongoing investigation and evidence collection to facilitate their eventual resolution.

The FCA is directly communicating with lenders involved in its skilled person review. However, all firms operating in the motor finance sector, regardless of their initial inclusion in the review, should have strategies and resources in place to effectively respond to any additional complaints or regulatory interventions.

It’s important to uphold the principles of transparency, fairness, and consumer protection while dealing with the intricacies of regulatory scrutiny. Moving forward, collaboration and open dialogue among industry stakeholders will be crucial to safeguard the interests of all parties involved.