FCA review into historical DCAs in motor finance
Here’s a reminder what’s happened:
In January of this year, the Financial Conduct Authority (FCA) initiated a review of historical motor finance debt collection agencies (DCAs) across multiple firms. The purpose of this review is to ascertain whether there was widespread misconduct associated with DCAs prior to the ban implemented in 2021, to determine if consumers have suffered losses, and, if that is the case, to identify the most effective means of ensuring that any compensation due is delivered in a manner that is orderly, consistent, and efficient.
Motor finance firms were allowed extra time to respond to complaints involving a debt collection agency. Consumers also received more time to take their complaints to the Financial Ombudsman. This extension aimed to avoid confusion and unfair outcomes for consumers, as well as negative impacts on companies and the market, while the FCA looked into the matter and figured out the best solution.
In September, the FCA pushed the deadline to December 4, 2025. This delay was due to the longer time needed to gather the necessary data for the review. The FCA also wanted to consider important court rulings before making further decisions. This included a recent Court of Appeal ruling and the results of a judicial review from October 2024, where Barclays Partner Finance challenged a Financial Ombudsman decision about a DCA in a motor finance agreement, with a judgement expected soon.
The FCA is looking at how the Court of Appeal's ruling affects the review of past DCAs in motor finance, including its scope and timeline. This will largely depend on whether the Supreme Court decides to take up an appeal and, if it does, the timing involved.
FCA plans to seek opinions on giving motor finance companies more time to address commission complaints. 13.11.24
The decision to consult follows the Court of Appeal’s judgement in Hopcraft v Close Brothers Ltd, Johnson v Firstrand Bank Ltd, and Wrench v Firstrand Bank Ltd.
The FCA plans to seek opinions on giving firms more time to address consumer complaints related to motor finance that include a non-discretionary commission. This would also allow consumers to take their complaints to the Financial Ombudsman Service. The proposals should be released in about two weeks, and if approved, the extended complaint period could start by mid-December 2024.
The FCA has been actively monitoring the market since the judgement. They have engaged with the industry extensively, participated in discussions with the government, held their own roundtable, and talked to 63 firms. Additionally, the FCA has discussed with consumer representatives about what the judgement means for them.
Whilst motor finance firms are expected to encounter a significant number of complaints following the recent ruling by the Court of Appeal, the FCA feel extending the complaint period would give them time to figure out the best way to manage these complaints, thus avoiding disorderly, inconsistent, and ineffective results for consumers, the finance firms, and the market.
In the case of Hopcraft, Johnson and Wrench, the Court of Appeal ruled that it was illegal for car dealers to accept a commission from the lender offering motor finance without the customer's clear agreement. Customers needed to be informed about all important details, such as the commission amount and its calculation method. The ruling addressed both fixed commissions in motor finance deals and discretionary commission arrangements (DCAs), which the FCA banned in 2021.
Interestingly, the Court of Appeal's decision centers on common law, not FCA rules or principles. FCA-authorised firms must comply with broader legal standards in addition to regulatory rules. Courts are the appropriate bodies to interpret common law.
The two lenders involved plan to appeal.
The proposed extension for complaints will last at least until the Supreme Court decides on the appeal permission. The FCA will present options for the extension's duration in its consultation.
The FCA will request the Supreme Court to make a quick decision on the appeal permission and, if granted, to address it promptly due to its potential effects on the market and consumers. If the appeal is allowed, the FCA may intervene to provide its expertise to help the Court.
In the meantime, the FCA think firms should use the extended time period to:
ensure they have the resources to issue final responses to complaints at the end of a proposed extension.
consider whether they should make any financial provisions as complaints need to be handled in line with the law.
