Regulator to investigate historic claims on car finance commissions
Consumers who faced unfair costs on discretionary car finance commissions could receive compensation after the City watchdog announced it would be investigating historic claims.
In a statement this morning, the FCA said it would “review historical motor finance commission arrangements and sales across several firms.”
Back in 2021, the FCA banned certain commission models for car finance which encouraged brokers to raise costs for consumers.
However, several complaints have been made about commission arrangements put in place before the ban.
These complaints have been rejected by the firms, but in two recent cases, the Financial Ombudsman Service found in favour of the complainants.
“There is significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements,” the FCA said upon announcing its investigation.
If the FCA finds evidence of “widespread misconduct” when conducting its review then it will identify how to ensure people receive an “appropriate settlement”.
It also paused the deadline for motor finance firms to provide a final response to relevant customer complaints.
The pause will last for nine months and is designed to prevent “disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms.”
“It is particularly important to manage these risks because, in line with most types of consumer credit, motor finance is not protected by the Financial Services Compensation Scheme,” the FCA noted.
The FCA will set out the next steps on the issue in the third quarter of this year.
Abby Thomas, chief executive and Chief Ombudsman, welcomed the decision, commenting: “When people take out a car loan it’s imperative they are treated fairly and the financial implications are totally transparent.
“Unfortunately, that is not always the case. We’ve heard from more than 10,000 people who fear they were charged too much for their finances, and we know many more are waiting in the wings,” she continued.
The update comes in the same week that the FCA’s insurance head, Matt Brewis, fired a warning shot at premium finance, suggesting regulatory action may be incoming.