Motor finance companies set for additional time to deal with fee complaints

Britain’s City watchdog looks set to extend the deadline by which lenders must respond to customer complaints about historic commissions on car loans.

The Financial Conduct Authority is proposing to consult on giving motor finance companies more time to deal with consumer complaints regarding deals involving non-discretionary commissions.

It warned that motor finance firms ‘are likely to receive a high volume’ of complaints following a landmark court judgement last month.

The Court of Appeal ruling sent shockwaves through the market as it effectively placed much higher levels of transparency requirements on lenders, some of which immediately suspended new business. 

Probe: Financial regulators have been investigating the historical sale of DCAs amid concerns they led to drivers paying excessive interest when buying their vehicles

An extension, the FCA said, would give them more time to assess how complaints might be ‘efficiently and effectively handled’, and stop ‘disorderly, inconsistent and inefficient outcomes’ for the market, lenders and customers.

Proposals are set to be published within a fortnight; if carried forward, it would result in the complaint extension coming into force by mid-December.

On 25 October, the court ruled that it was unlawful for vehicle sellers to receive a commission from a lender on finance deals if the customer buying the car had not given their ‘fully informed consent’ to the payment.

The FCA said it had since spoken about the potential consequences of the verdict with 63 businesses, the government and consumer representatives.

It intends to write to the Supreme Court asking if the judgement can be appealed; Close Brothers and FirstRand, two of the lenders involved in the case, already plan to appeal.

Should the appeal be granted, the FCA wants the court to provide a quick decision ‘given the potential impact of any judgment on the market and the consumers who rely on it’

Rhe FCA is calling on vehicle finance lenders to ‘use the time provided to ensure they have the resources to issue final responses to complaints at the end of a proposed extension’.

It added: ‘Motor finance firms are also likely to need to consider whether they should make any financial provisions as complaints need to be handled in line with the law.’

Since January, the FCA has been looking into the historical sale of ‘discretionary commission arrangements’ (DCAs).

Until they were prohibited, DCAs allowed dealerships and brokers to set the interest rate on a car buyer’s finance agreement.

This encouraged brokers to charge customers higher rates without regard to other factors, including the loan’s value, length of agreement, or a customer’s credit score.

Concerns abound that the probe could result in a PPI-style scandal, with banks and other lenders paying billions in compensation.

RBC Capital Markets estimated Close Brothers, which has stopped providing new car loans to consumers since the court’s decision, could be laid with a £640million bill, more than double its current market capitalisation.