FCA extends automobile finance complaints deadline as lenders scramble

The City watchdog has extended the deadline for motor finance lenders to respond to complaints regarding historic commissions on car loans.

The Financial Conduct Authority (FCA) has granted motor finance companies until 4 December 2025 to offer a final response to non-DCA complaints, just as it has done with complaints concerning DCAs.

It comes around two months after the Court of Appeal decided that it was unlawful for a lender to pay vehicle sellers a commission on finance deals if the car buyer had not given their ‘fully informed consent’ to the payment.

Following the verdict, lenders expected to receive a massive volume of complaints from borrowers seeking compensation.

As a result, the FCA said it was necessary to lengthen the time firms have to handle complaints to stop ‘disorderly, inconsistent and inefficient outcomes’ for consumers and businesses.

Many analysts believe the car finance sector could end up paying tens of billions in damages to motorists who took out loans to purchase vehicles.

Extension: The FCA has granted motor finance companies until 4 December 2025 to offer a final response to non-DCA complaints, just as it has done with complaints concerning DCAs

One senior FCA lawyer, Stephen Braviner Roman, recently suggested the total figure could surpass the estimated £50billion British banks paid to settle payment protection insurance claims. 

This has led banks to set aside considerable sums and bolster their capital position to cover the potential cost of any payouts.

Close Brothers has suspended dividend payments and agreed to sell its wealth management division to investment firm Oaktree Capital Management. It also briefly suspended underwriting any new vehicle finance deals.

However, the Supreme Court allowed Close Brothers and MotoNovo owner FirstRand permission to appeal against the Court of Appeal’s decision in October, providing hope to lenders of a lower compensation bill.

Gary Greenwood, research analyst at Shore Capital Markets, said: ‘The range of interpretations and so possible outcomes with regards to the financial impact for the industry and its participants continues to be very wide.’

The FCA has been investigating the motor finance sector for many years, following concerns that car buyers were paying more than necessary on deals. 

It began an investigation in January into the historical sale of DCAs, which allowed dealerships and brokers to choose the interest rate on a vehicle purchaser’s finance agreement.

This encouraged brokers to charge consumers higher rates regardless of ancillary factors, such as a loan’s value, length of agreement, or a customer’s credit score.

DCAs were used in about three-quarters of all motor financing deals between 2007 and 2020 until they were outlawed.

The FCA intends to publish the findings from its review sometime in May 2025.