Britain’s Financial Conduct Authority (FCA) has announced plans to consult on extending the timeline for motor finance companies to respond to consumer complaints regarding commissions. This initiative follows a significant Court of Appeal ruling that deemed it unlawful for car dealers to receive commissions from lenders without obtaining informed consent from customers. The implications of this ruling could lead to a substantial consumer redress scheme, estimated to cost the industry up to £16 billion ($21 billion), potentially marking it as one of the most costly scandals in British banking history since the payment protection insurance (PPI) mis-selling crisis.
The FCA’s proposal comes in light of the October 25, 2024, Court of Appeal judgment in the cases of Hopcraft v Close Brothers Ltd, Johnson v Firstrand Bank Ltd, and Wrench v Firstrand Bank Ltd. The court ruled that lenders must repay “hidden” commissions plus interest because these fees were not disclosed at the time of loan agreements. As a result, consumers are likely to flood motor finance firms with complaints, prompting the FCA to consider an extension for firms to manage these effectively.
The FCA has indicated that it will write to the Supreme Court requesting a swift decision on whether lenders can appeal this ruling. The proposed extension would remain in effect until the Supreme Court decides on the appeal, ensuring that firms have adequate time to handle complaints without causing disorderly or inconsistent outcomes for consumers and the market.
The FCA’s consultation is expected to yield proposals within two weeks, with potential implementation by mid-December 2024. The regulator has engaged extensively with industry stakeholders and consumer representatives, recognizing that firms will need time to prepare for a surge in complaints. Analysts suggest that this situation could lead to significant financial provisions by motor finance companies as they brace for potential liabilities stemming from unresolved complaints.
Lloyds Banking Group has already set aside £450 million in anticipation of costs related to regulatory reviews concerning car finance lenders. This proactive approach underscores the financial strain that may befall firms as they navigate the fallout from the court’s ruling and subsequent consumer complaints.
The FCA’s proposed extension will include options regarding how long this period should last, which will be outlined in its consultation document. It is crucial for consumers who have taken out motor finance agreements involving discretionary commission arrangements (DCAs) to understand their rights during this period. Consumers can still lodge complaints with their providers, and they have until July 29, 2026, or 15 months from their provider’s final response letter, to escalate their complaints to the Financial Ombudsman Service.
The FCA is also conducting a broader review into historical DCAs in motor finance agreements, assessing whether consumers have been overcharged due to these practices. Findings from this review are expected by May 2025, at which point the FCA will determine whether additional measures are necessary, including possibly implementing a consumer redress scheme.
As the FCA moves forward with its consultation on extending complaint handling timelines for motor finance firms, both consumers and industry stakeholders are left awaiting clarity on how these changes will unfold. The potential financial ramifications for lenders are significant, and the outcome of ongoing legal proceedings will undoubtedly shape the future landscape of motor finance in Britain.
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