The FCA has extended the pause to the deadline for automobile finance firms to provide a final response to customer complaints regarding discretionary commission arrangements (DCAs) until December 4, 2025.
Consumers raised concerns about a number of lenders engaging in deceptive practices, including excessive interest rates, hidden charges, and aggressive debt collection tactics, which in some cases led to financial hardship and bankruptcy.
In response to these allegations, the FCA began an investigation to gather evidence and identify the lenders involved. On January 11, 2024, the regulator announced via a policy statement (PS24/1) that it was carrying out diagnostic work via a “skilled person’s” report under Section 166 of the Financial Services and Markets Act 2000 (FSMA). This would review historic finance commission arrangements and sales across several firms.
On the same date, the Financial Ombudsman Service (FOS) upheld two complaints against lenders using DCAs, awarding compensation. One of the FOS decisions is under judicial review – Barclays Partner Finance, expected in October 2024 – and a Court of Appeal judgment on related cases from July 2024 is awaited.
On July 30, 2024, the FCA published a number of updates in relation to its work on complaints against motor finance firms. This included a consultation on a proposal to extend the DCA complaint handling pause. This was because it had taken the FCA longer than expected to get the data it needed from firms.
Expert comment
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The scandal has raised questions about the effectiveness of the FCA’s oversight of the motor finance industry. Critics have argued that the regulator has been too slow to respond to concerns about industry’s lending practices.
We spoke to Parvez Khan, director of IPK European Strategy to discuss the FCA’s approach and substantive matters. Parvez is currently advising and representing the interests of one of the largest claimant firms in the market, which has been supporting UK consumers on a range of financial services and consumer misselling cases in recent years.
What this means in practice
“At the outset I think it is important to emphasize this is a very significant misselling case. The material impact is very significant, in terms of numbers of people affected by the misselling, and the financial impact on individuals, many of whom may have been missold multiple times.
“My analysis and views of the FCA’s approach pausing the option and availability to consumers to bring claims for redress in these circumstances is quite granular and technical, but touches on fundamental principles of law and regulation, and the FCA’s own obligations.
FCA’s statutory obligations
“The FCA has drawn on principles and statutory obligations, namely consumer protection and market integrity. For me, access to justice is a key issue here, and is a fundamental aspect of the analysis on how consumer protection and market integrity are best ensured in these matters.
“The FCA appears to consider it more important for consumers to continue to have motor finance options than redress for significant mis-selling claims. My view is consumer protection outcomes are better served through allowing claims and ensuring consumers continue to have confidence in the financial services sector. I think the contention that UK consumers would not have access to finance to purchase motor vehicles is questionable and significantly undermined in view of the composition of the motor finance companies (MFC) sector. The vast proportion of motor finance is provided by the largest and most well-known names. They have also known about these issues for some years and should have been making provision.
“On market integrity, again the focus of the FCA appears to be on the motor finance sector and the potential impact on the sector from having to appropriately respond to a large volume of claims against the large scale mis-selling. I believe access to justice and strong ability to legal recourse is a fundamental cornerstone of well-functioning financial markets, and market integrity is fundamentally undermined by creating an obstacle to recourse to effective and timely recourse to justice. The importance of the UK legal system to the financial sector is well established. This fundamentally cuts across that understanding and reality.
“The FCA has set out its rationale over the multiple statements and publications over several years now. Its approach risks giving a perception it is siding with the large finance providers over consumers. At this time such perceptions would have material impact on confidence in how serious it is about prioritizing delivery of the consumer duty. Instilling a consumer-focused culture in the financial services sector is an important feature of a competitive retail sector and broader UK financial sector.
Impact of the delay
“Beyond these high-level more fundamental concerns I think important considerations arise in terms of impact of the delay on consumers. It is worth noting the significant proportion of claimants my clients are relating to are over 50 and also from low-income communities, underlining the fact a delay in the ability to bring claims for redress and receive compensation will impact households during a time of economic pressure.
“A key impact of the delay will be that claims are frustrated. There is evidence that a large proportion of claimants are simply not able to bring their own claims and require assistance. The delay will mean many firms are not able to stay engaged with the process and provide assistance to individuals and households who otherwise are not able to bring their claim themselves.”
If you have any specific questions or need further details, feel free to ask parvezkhan@ipkeuropeanstrategy.com
What next?
The FCA will set out next steps in its review into the past use of DCAs in May 2025. It is hoped by then that it will have completed its analysis and assessed the outcome of the Barclays judicial review and other relevant cases in the Court of Appeal.
The FCA said the extended pause will allow it time, if necessary, to introduce an alternative way of dealing with DCA complaints, such as a consumer redress scheme.
“It is too early to say if we will intervene in this way, but based on our work so far, it is more likely than when we started our review”, it confirmed in a statement.