FCA to probe historic mis-selling following public complaints

Three years ago the Financial Conduct Authority banned discretionary commission arrangements in a bid to end the incentive for brokers to increase the interest rate that a customer pays for motor finance.

But the authority says there have been a high number of complaints from customers to motor finance firms claiming compensation for commission arrangements prior to the ban. Firms are rejecting most complaints because they consider that they have not acted unfairly nor caused their customers loss based on the applicable legal and regulatory requirements.

However, the Financial Ombudsman Service has considered some complaints rejected by firms. It found in favour of complainants in two recent decisions and the FCA believes 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. So, there is significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements.

Consequently the FCA says it’s going to review historical motor finance commission arrangements and sales across several firms.

It’s thought to be an unusual exercise by the FCA, possibly setting precedents for other sectors.

An FCA statement says: “If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance.”

The authority is also temporarily pausing the eight-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will continue until September, to give time for the investigation.

It says: “This is to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we assess the issue and determine the best way forward. In deciding next steps, we will be informed by our statutory objectives to protect consumers, ensure market integrity and promote competition in the interests of consumers.”

Consumers will also have up to 15 months to refer their complaint to the Financial Ombudsman, rather than the usual six months and the FCA says: “This extension applies to complaints where the firm had sent a final response in the period beginning with 12 July 2023 and ending with 10 January 2024, or where the firm sends a final response during the period beginning with 11 January 2024 and ending with 20 November 2024.”