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FCA Investigates Motor Finance Commissions


In January 2021, the FCA banned discretionary motor finance commission arrangements (see the details of this here).

This ban removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. The FCA asked firms at the time to review their practices and, where harm was identified, to address this.

The FCA has now identified that there have been a high number of complaints made by customers to motor finance firms claiming compensation for commission arrangements in place prior to the ban and that firms are rejecting most complaints because they consider that they have not acted unfairly or caused their customers loss based on the applicable legal and regulatory requirements.

In addition, the Financial Ombudsman Service has considered some complaints rejected by firms and has found in favour of complainants in two recent decisions. This is likely to prompt a significant increase in complaints from consumers to firms and the Financial Ombudsman.

Claims have also been brought in the County Courts, some of which have been upheld. It is apparent that there is a significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements.

The FCA now reports that it is using its powers under s166 of the Financial Services and Markets Act 2000 to review historic motor finance commission arrangements and sales across several firms. If it finds that there has been widespread misconduct and that consumers have lost out, it will identify how best to make sure customers who are owed compensation receive an appropriate settlement in an orderly, consistent, and efficient way and, if necessary, to resolve any contested legal issues of general importance.

In the meantime, the FCA is pausing the eight-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will apply to complaints about motor finance agreements where there was a discretionary commission arrangement between the lender and the broker and it will last for 37 weeks. The pause is introduced without consultation and is effective from 11th January 2024.

This is to prevent disorderly, inconsistent, and inefficient outcomes for consumers and knock-on effects on firms and the market while the FCA assesses the issue and determines the best way forward.