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Highlights
- FCA considering extending complaint response time for motor finance firms.
- Proposal follows Court of Appeal ruling on non-disclosed commissions in motor finance.
- High volume of complaints expected; extension aims to improve complaint handling.
The Financial Conduct Authority (FCA) plans to consult on extending the time motor finance firms have to respond to consumer complaints involving non-discretionary commission agreements. This extension would also apply to the timeframe for referring complaints to the Financial Ombudsman Service. The consultation is set to be published within two weeks, with a decision expected by mid-December 2024.
Background on the Court of Appeal Ruling
The decision to consult comes after a recent Court of Appeal ruling on October 25, 2024, in the cases Hopcraft v Close Brothers Ltd, Johnson v Firstrand Bank Ltd, and Wrench v Firstrand Bank Ltd. The court found that it was unlawful for motor finance brokers, such as car dealers, to receive a commission from lenders without fully informing the consumer. This ruling affects both fixed commissions and discretionary commission arrangements (DCAs), the latter having been banned by the FCA in 2021.
The court emphasized that brokers must inform consumers of all material facts regarding commission arrangements, including the amount and calculation method. The judgment was based on common law principles rather than specific FCA regulations. Both lending firms involved intend to appeal the ruling.
High Volume of Complaints Expected
Following the judgment, the FCA has proactively engaged with the motor finance industry and consumer representatives, including consultations with 63 firms and government bodies. As motor finance firms are anticipated to receive a large influx of complaints, an extension would provide the industry time to ensure orderly and consistent complaint handling.
The FCA has stated that this extension would reduce the risk of disorderly complaint outcomes, potentially benefiting consumers, firms, and the wider market. If implemented, the extension would remain in effect until the Supreme Court decides on granting permission for an appeal, with options for the length of the extension to be included in the consultation.
FCA’s Response to the Court of Appeal Decision
The FCA is writing to the Supreme Court, requesting an expedited decision on appeal permission, noting the impact on the motor finance market. If permission is granted, the FCA is considering intervening to offer its expertise.
During the extension period, motor finance firms will need to allocate resources to manage and issue final responses to complaints. Additionally, firms may need to make financial provisions to prepare for potential complaint settlements in line with the legal framework.
Next Steps for Consumers and the Motor Finance Industry
Consumers are advised to submit complaints as usual. The FCA’s proposed extension seeks to give motor finance firms the necessary time to respond effectively to complaints, aiming to enhance the consistency and efficiency of outcomes for all parties involved.
