The FCA issued a consultation paper (CP24/22) on 21 November 2024 to extend the time firms have to respond to consumers about motor finance complaints relating to commission other than discretionary commission arrangements (DCAs). This follows a Court of Appeal judgement on 25 October 2024, which found it was unlawful for brokers to receive commission from a motor finance provider without obtaining the customer’s informed consent. The judgement raises the standard for disclosure, by requiring that customers are informed of the amount of commission paid to brokers and how it is calculated, such that customers can provide their informed consent.
The FCA launched a review in January 2024 into DCAs in motor finance, following a high volume of complaints and Financial Ombudsman Service (FOS) referrals. It introduced rules pausing the deadline for firms to respond to complaints involving DCAs until 4 December 2025. The FCA is due to set out next steps and consult on any proposals for a consumer redress scheme in May 2025.
This date was pushed back (from September 2024), due to delays in conducting the review, and to assess the outcomes of relevant court cases: the Court of Appeal case, and a judicial review of a FOS decision (the outcome of which remains pending).
Following the Court of Appeal’s recent judgement, the FCA is proposing to pause complaint handling rules for any complaint about a motor finance regulated credit agreement where there was a commission arrangement.
Court of Appeal judgement
The three joined appeals to the Court of Appeal of Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd relate to motor finance DCAs as well as non-discretionary commission arrangements, such as fixed commission. The basis of the judgement is common law, rather than FCA rules.
The FCA believes the judgement is likely to result in a significant increase in motor finance non-DCA commission complaints. It’s therefore proposing to give firms extra time to deal with these complaints, to ensure they’re treated in an orderly and consistent way.
The regulator says the extension will also allow time for the outcome of any appeal by FirstRand Bank or Close Brothers to the Supreme Court (both have signposted their intention to appeal). The FCA has said it intends to write to the Supreme Court to request that it decides the application as quickly as possible, and that it stands ready to assist the case, should the Supreme Court grant permission to appeal.
FCA proposals
The FCA is proposing to suspend the requirement to provide a final response to complaints and give complainants the right to go to the FOS within eight weeks until either 31 May 2025 or 4 December 2025. The earlier date reflects the FCA’s best estimate for when the Supreme Court will decide to grant permission to appeal (including additional time for the FCA to respond by putting further measures in place). The later date aligns with the rules on motor finance DCA complaints.
Consumers who receive a final response to such complaints will have until the later of 15 months from when the final response is sent or 29 July 2026 to decide whether to refer their complaint to the FOS.
The FCA proposes a broad definition of a motor finance non-DCA commission complaint, to make the rules straightforward to implement. Its definition is: a non-DCA complaint that is about a regulated credit agreement that wholly or partly financed the purchase of a motor vehicle, and where there was an arrangement for the payment of commission between the lender and the broker. The definition excludes complaints about regulated motor finance consumer hire agreements such as personal contract hire agreements.
The FCA expects firms to not apply the extension to complaints where commission is not a relevant consideration to the complaint.
The FCA also reminds firms that, as with its DCA complaints pause, the rules do not remove their obligations to progress complaints under the DISP rules. Where possible, the FCA expects firms to progress motor finance commission complaints by investigating and collecting evidence that could help with their eventual resolution, taking into account all relevant factors (including the Court of Appeal’s judgement).
The regulator also proposes changes to its record keeping and retention rules. DISP requires firms to keep a record of each complaint received and measures taken to resolve it, for three years from the date they received the complaint. The FCA proposes that the period from 25 October 2024 to either 31 May 2025 or 4 December 2025 will not contribute to the three-year period. It further proposes to introduce a rule to require lenders and credit brokers to maintain any records that are or could be relevant to the handling of existing or future complaints or civil claims for motor finance non-DCA commission complaints, regardless of whether the customer has complained.
The FCA reminds firms of their obligations to comply with the threshold conditions, including the need to have appropriate financial resources to cover their debts and liabilities. In light of the Court of Appeal’s judgement, the regulator says firms should consider any provisions they need to make to deal with potential administrative and redress costs.
Potential for broader reform
Separately, the Chancellor has called for broader reform to the UK framework for consumer redress, as part of the Mansion House reforms. The FCA and FOS issued a joint call for input on modernising the redress system on 15 November 2024. They’re seeking views on issues such as: changes to better identify and manage mass redress events e.g. through further DISP guidance/rules or changes to FOS referral time limits; and changes to how the two bodies work together to ensure their views on regulatory requirements are consistent. The call for input closes on 30 January 2025, and the FCA plans to publish its next steps in H1 2025.
Carry out work to understand the wide range of potential scenarios, and their operational and financial implications.
Prepare to contact relevant complainants, and to implement the proposed rules immediately once the FCA issues its policy statement.
Consider the necessary systems, controls and monitoring requirements needed for any changes made to commission models, sales processes and documentation.
In response to the Court of Appeal judgement, some lenders temporarily withdrew from the market to adjust their commission models, sales processes and documentation. To enable changes, firms will need to consider the systems, controls and monitoring required to make sure evidence is complete, accurate and that disclosure takes place.
While the CP relates to motor finance only, as the FCA acknowledged in a conference call with market analysts on 13 November 2024, there is uncertainty as to whether the judgement applies to products beyond motor finance. The FCA has said it is considering publishing its views on this, to help firms navigate that uncertainty.
Firms should therefore consider agreements written after January 2021, non-DCA models and other forms of credit where commission may be paid to a broker (e.g. contract hire, personal loans, asset finance, insurance premium finance and finance for furniture, dental, season tickets etc.). This is to understand the wide range of potential scenarios and their operational and financial implications.
Firms should also consider the impact of the judgement on any provisions they need to make to deal with potential administrative and redress costs. Listed firms and those with wholesale market funding will need to consider the adequacy of their previous disclosures to investors and the market.
In addition, firms should prepare for a significant increase in customer contacts and complaints; the FCA estimates that firms could receive 470,000 complaints relating to motor finance non-DCA commission, in the three months to 31 January 2025. The FCA makes clear that where a firm has previously rejected a complaint because the agreement did not involve a DCA, they should allow the consumer to make a new complaint about commission.
Firms should prepare to contact relevant complainants to keep them informed of the extension to the pause in complaint handling time limits. Firms should also reflect on their obligations under DISP, including the requirement to consider the position of customers who may have suffered detriment or been disadvantaged by recurring or systemic problems, but who have not complained. To ensure complainants and non-complainants are treated consistently, the FCA says it may be reasonable for firms to consider the position of non-complainants by assessing the scope and severity of potential detriment (but not take steps to undertake proactive redress or remediation at this stage).
The consultation closes on 5 December 2024, and the FCA plans to publish a policy statement by 19 December 2024, with the rules coming into force immediately.
The FCA will set out next steps from its review into past use of DCA and consult on any redress proposals in May 2025. It will confirm the final rules for how consumers will be compensated in December 2025.
Chancellor Rachel Reeves delivered her first Mansion House on 14 November 2024 setting out the Government’s vision for financial services, prioritising competitiveness and the role the sector can play in driving growth, innovation and the transition to net zero.
PwC's summary of the FCA's consultation to extend the time limit for firms to respond to motor finance complaints involving discretionary commission arrangements.
With customer complaint numbers rising, and greater supervisory scrutiny of complaints handling and monitoring, in this article we look at how firms can meet the associated challenges, and reduce future costs associated with complaints and remediation.
The FCA has announced a review of historic commission arrangements in the motor finance sector, which could result in an industry-wide consumer redress scheme.
Sajedah Karim
Martin Hislop
Iqvinder Hunjan
