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What has happened?

In March 2024, the FCA’s chief executive, Nikhil Rathi, provided, in a speech entitled “Investing in Outcomes”, some updated commentary on the regulator’s approach to its current review of motor finance commission arrangements.

What are the key points?

Nikhil Rathi’s key overall comment was that “In dealing with motor finance claims, we have intervened now to establish the facts and are aiming for earlier clarity than previous redress events. The more quickly and comprehensively firms cooperate with requests for data, the sooner we can conclude our work”.

Other comments made during the speech were;

“We recognise this work has generated some uncertainty in terms of how we will assess outcomes. It has also attracted speculation about whether or not consumers are owed redress and if so, what the cost would be.   

We are working hard to get to the bottom of the facts and will set out the next steps by the end of September.

It is worth repeating some of the history here. In 2021, after the pandemic, we banned discretionary commissions.

Perhaps inevitably, complaints, at first in a trickle and then in something more torrential, came in. The courts have and are considering legal cases, with mixed results. The Ombudsman is assessing complaints.

With its first decisions, we acted. We intervened to pause, until September, the requirement for firms to give a final response to complaints within 8 weeks about agreements with discretionary commission arrangements.

We are mindful not just of ensuring that consumers are treated fairly but also of our objective to ensure markets function well. In a country where 78% of households own a car, it is obvious that we need to maintain a functioning, accessible and competitive motor finance market.

It is a sure case of the balancing act I mentioned earlier.

Understandably, there are different estimates from analysts and campaigners of the cost and scale of this issue.

Some, not us, have sought to draw comparisons with payment protection insurance (PPI). In PPI, the regulator’s work took place over many years and this and action on redress dragged on for some time. With motor finance, because of the impact on firms, as well as consumers, we want to clarify matters in a more condensed time frame and on a basis that is robust and fair. Critically, this will depend on firms cooperating fully and providing data comprehensively and promptly as well as potentially the speed of any court processes.

There are elements of these cases that expose firms’ legal obligations and whether these were met in particular situations. The court system is available to firms as well as consumers to settle these points. We do not consider it complicates the work we are doing now if firms have a legal case they wish to pursue directly either by appealing County Court judgements or seeking judicial review of FOS decisions. Whether to do so is a matter for firms to decide and, if necessary, explain their choices to their investors.

While certainty is not something I can provide today, and I cannot prejudge what we might find, I can say in my view it is improbable we will find nothing to report as we look at historic motor finance sales. Some firms will be better placed than others. Equally, I do not anticipate this issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness”.

It was reported after the speech that analysts at investment bank Royal Bank of Canada had estimated a downside impact of between some £2bn and £8bn for the motor finance sector.

How can we help you? 

Thistle Initiatives has supported lending firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting firms as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your motor finance lending arrangements, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.

See our January 2024 blog on this subject here.