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FCA Announcement About Work in the Motor Finance Market

The FCA has announced that they are undertaking work in the motor finance market, specifically on historic discretionary commissions and any harm this may have caused consumers, as well as some temporary changes to how customer complaints about these commissions are handled.


Since January 2021, Claims Management Companies (CMCs) and other legal firms have raised complaints on behalf of consumers to firms across our industry, which has led to a significant number of court cases (lenders are currently winning more than they are losing) and thousands of cases currently sat with the FOS. The regulator has been watching how these cases play out. 

According to the FCA, by the end of June 2023, 99% of the 30,000 motor finance commission complaints that have been received by lenders have been rejected, and as a result, thousands have then been sent to the FOS. Firms have rejected them as they do not consider that they have acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements.

Over the last couple of months, the FOS has considered some complaints rejected by firms and has now found in favour of complainants in two recent decisions. These two decisions are now likely to cause an increase in complaints received by both firms and the ombudsman.

What are the FCA doing?

The FCA has taken immediate action to stop both firms and the FOS from becoming even more burdened by large numbers of commission complaints.

They are using their powers to review historical motor finance commission arrangements and sales across several firms for agreements up to the 28th of January 2021, when these commission packages were banned by the motor finance paper PS20/8.  The FCA is appointing a ‘skilled person’ to go into several lenders to investigate commission practices with those firms, and from this, they can determine what to do next. Action could include compensation for consumers.

With immediate effect, they are introducing a 37-week pause (up to 25th September) in the requirement for firms and the FOS to provide a final response to consumers who have made a complaint within the normal 8-week timeframe. This is solely for motor finance firms and for relevant discretionary commission complaints.

They have also made some temporary changes to their DISP rules to enable this to happen. This is the FCA rulebook for the handling of complaints. Consumers will have 15 months rather than the usual 6 months to refer these complaints to the FOS to allow for the current pause.

They will seek to reach a conclusion within the 37 weeks they have outlined, but they may extend the pause if they find harm and need to decide how to handle the redress.

What it means for you and the industry.

This is not a new risk, and the fact that the FCA is now taking action is a positive step to putting this to bed once and for all. The FCA want to make sure this is handled efficiently, orderly and in a consistent manner, for the good of both consumers and the firms in our industry, which is also a positive.

What do you need to do?

We will, as always, keep you updated on this subject when we can.

Evolution Risk & Compliance team