Car finance firms to be given more time to handle surging complaints

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The Financial Conduct Authority (FCA) has revealed plans to extend the time allowed for motor finance companies to address an anticipated surge in consumer complaints, following a recent Court of Appeal decision that declared it unlawful for banks to pay commissions to car dealers without customers’ informed consent.

The UK regulator warned that car finance providers are likely to see a significant influx of complaints over alleged mis-selling practices.

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.

Money saving expert Martin Lewis, shared on social media: “While not specified in its announcement, I’ve had it confirmed this applies to ALL car finance commission complaints, not just the Discretionary Commission Arrangements (DCAs) complaints previously covered.

“It signals that the FCA is paving the ground to in future broaden the scope of its car finance investigation, so not only at the 40% of past claims that had DCAs (where dealers could increase their commission by increasing interest) but all commissions including fixed commissions.”

Lewis added that “almost everyone” could see money returned to them with this also including drivers who were previously rejected under the DCA complaints process.

On 25 October, the Court of Appeal found it illegal for dealerships to receive commissions on car finance deals without securing “fully informed consent” from buyers. This decision has generated comparisons to the payment protection insurance (PPI) scandal, which ultimately cost banks £50bn. Analysts warn that potential compensation costs for banks in this case could surpass £16bn, heightening concerns that the final financial impact may mirror that of PPI.

Until discretionary commission arrangements (DCAs) were banned in 2021, brokers and dealerships had the authority to set interest rates on car loans, incentivising higher charges to customers irrespective of factors like loan size, duration, or credit profile. RBC Capital Markets estimated that Close Brothers (CBG.L), which has since paused its car loan services, may face liabilities as high as £640m, exceeding its current market capitalisation.

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