The recent decision by the Financial Conduct Authority (FCA) to hit pause on motor finance complaint deadlines has brought to the forefront the escalating disputes between consumers and firms regarding commission arrangements.
This move, prompted by the intensifying conflicts over pre-2021 commission structures, aims to provide a thorough review while considering potential compensation for affected consumers. One might be tempted to call it ‘Consumer Duty in Action’, after the regulator’s name for higher and clearer standards of consumer protection across financial services which came into force in mid-2023.
Last year, Leasing Life highlighted the surge in complaints about car financing, with an 87% YoY increase, totalling 11,452 complaints at the Financial Ombudsman Service (Fos). Cars financed through agreements were the third most complained-about finance product after bank accounts and credit cards, underlining the significance of the issue.
Car financing is undeniably a substantial industry, with around £40 billion borrowed annually and 93% of new cars purchased through finance, according to data from the Finance and Leasing Association (FLA). The popularity of Personal Contract Purchase and Personal Contract Hire agreements has further fueled the demand, offering flexible solutions for leasing and ownership.
However, the surge in complaints, particularly about the condition of financed cars and a notable increase in complaints about commissions, fees, and charges, has raised concerns. The Sunday Times‘ review of Fos data in 2023 revealed that complaints in this category had risen to 49%, up from 24% in the previous financial year.
One prominent issue leading to complaints is discretionary commission, the charging of interest rates beyond what is deemed reasonable, now banned by the FCA. Additionally, the opaque practice of undisclosed commissions remains a thorn in the side of consumer protection efforts. Dealers and brokers are expected to declare commissions during loan agreements, but lax monitoring and enforcement have allowed this practice to persist.
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The FCA’s pause signifies a crucial step in addressing these systemic issues. Empowered by the Financial Services and Markets Act 2000, the FCA aims to assess the extent of potential misconduct, placing consumer protection, market integrity, and competition at the forefront. The temporary suspension, effective until September 2024, offers consumers an extended 15-month period to refer their complaints to the Financial Ombudsman, emphasising the commitment to a fair and thorough resolution.
As we navigate this hiatus, it is essential to scrutinise the underlying problems, advocating for transparent practices, stringent monitoring, and robust enforcement to safeguard consumer interests. The FCA’s pause provides a unique opportunity to reshape the landscape of motor finance, ensuring fairness, accountability, and a balanced playing field for all stakeholders involved.