Duncan ScottFCA is unhappy that motor finance firms are rejecting high numbers of consumer complaints about commission arrangements. After FCA banned discretionary commission arrangements in 2021, many consumers complained and claimed compensation for commission arrangements that were in place before the ban. FCA imposed the ban because of concerns that widespread use of these arrangements linked the commission the broker received to the interest rate the consumer paid, and provided strong incentives to brokers to earn more commission by increasing the interest rate.
Firms generally seem to consider they did not breach any regulatory requirements and are as a result rejecting the complaints. FCA figures show that between the beginning of 2019 and mid-2023, firms closed around 30,000 relevant complaints, and rejected 99% of these. However, FOS has recently found in favour of two complainants who referred their cases to it, and there have also been successful County Court claims. FCA says the recent FOS decisions are likely to lead to many more complaints and possible FOS referrals.
It is now taking immediate action.
FCA has decided that, since there seems to be significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements, it will:
- use its powers under s166 FSMA to appoint “skilled persons” to review historical motor finance commission arrangements and sales across several firms – and take appropriate action depending on the results. FCA plans that the skilled person will produce a report on how a sample of firms carried out motor finance sales before the ban (including before FCA took over regulation of consumer credit in 2014), and that the report will help FCA to decide whether consumer complaints should continue, or whether there should be a different approach to resolve the issue;
- pause, with immediate effect, the normal 8 weeks that firms have to respond to customer complaints, in relation to relevant complaints where there was a discretionary arrangement between lender and broker. FCA expects this pause to last for around 9 months, and it will apply to complaints received between 17 November 2023 and 25 September 2024;
- allow consumers up to 15 months to refer a relevant complaint to FOS where firms have sent the final response on or after 12 July 2023 (and will apply to those received up to 20 November 2024).
Although FCA has introduced the requirements immediately and without consultation because it believes any delay in introducing them would be prejudicial to consumers’ interests, it still welcomes views on the measures before 11 March.
In addition to the new rules and its statement, FCA has published a consumer factsheet, created a new page on its website and published the two FOS decisions it refers to.
FCA will set out its next steps later this year – no later than 24 September.
FOS has also commented on FCA’s decision and created a new page on its site. It commented that it has heard from over 10.000 people already who think they were charged too much for their finance. It also highlighted its two recent decisions and says it now expects more references. In the first published complaint, Black Horse had entered into a hire purchase agreement with the complainant, in 2016. The complainant said she was treated unfairly and suffered loss because of the discretionary commission model Black Horse operated with the broker, if which the complainant did not know the details. FOS found that Black Horse acted in breach of CONC in its arrangements with a broker, and that a court would be likely to find the relationship between Black Horse and the complainant as unfair under s140A CCA for several reasons.