In 2021, the FCA implemented a ban on discretionary commission arrangements, eliminating the incentive for brokers to raise interest rates on motor finance for customers. Following this, the FCA urged firms to scrutinize their practices and address any identified harm caused by such arrangements.

Numerous customer complaints have arisen, with individuals seeking compensation for commission arrangements predating the ban. While most firms reject these complaints, asserting compliance with legal and regulatory requirements and denying any unfair practices or customer losses, the Financial Ombudsman Service has reviewed some of the rejected cases.

This has triggered an anticipated surge in consumer complaints both to firms and the Financial Ombudsman. Concurrently, legal disputes in County Courts have resulted in conflicting outcomes, highlighting a substantial disagreement between some firms and consumers regarding potential breaches of legal and regulatory obligations.

In response, the FCA is leveraging its powers under s166 of the Financial Services and Markets Act 2000 to conduct a comprehensive review of historical motor finance commission arrangements and sales across multiple firms. If widespread misconduct and consumer losses are identified, the FCA will determine the most effective means to ensure affected individuals receive fair compensation in an organized, consistent, and efficient manner. Additionally, any contested legal issues of general importance will be addressed.

During this review, the FCA is implementing a pause on the 8-week deadline for motor finance firms to provide final responses to relevant customer complaints. This pause specifically pertains to complaints related to motor finance agreements with discretionary commission arrangements and will last for 37 weeks, or approximately 9 months.

The FCA has instituted this pause without consultation to prevent disorderly, inconsistent, and inefficient outcomes for consumers and potential repercussions on firms and the market. The decision-making process for the next steps will be guided by the FCA’s statutory objectives, prioritizing consumer protection, market integrity, and competition promotion.

Notably, motor finance, like many consumer credit types, is not covered by the Financial Services Compensation Scheme, emphasizing the significance of managing associated risks.

This pause is applicable to complaints received by firms between November 17, 2023, and September 25, 2024. It allows firms to extend their response time by 37 weeks, with the analysis of issues ongoing. The FCA may extend the pause if additional time is required to ensure proper resolution of complaints and fair compensation distribution.

Consumers are also granted an extended 15-month period to refer their complaints to the Financial Ombudsman, deviating from the usual 6-month timeframe. This extension covers complaints related to final responses sent by firms between July 12, 2023, and November 20, 2024.

Consumers can find out more about how this affects them.

FCA plans to set out next steps on this issue in Q3 2024.