On 30 July 2024, the FCA consulted to extend the time firms have to respond to consumers about motor finance complaints involving discretionary commission arrangements (DCA).
The FCA proposes pausing the time limit on complaints handling until 4 December 2025, 15 months beyond the initial 25 September 2024 deadline.
The FCA plans to use the extension to complete its assessment of historical use of DCA, as well as to design, consult on and introduce an alternative way of dealing with DCA complaints, such as a consumer redress scheme, if necessary. The FCA may also consult to end the pause at an earlier date if additional time is not required.
The FCA launched a review in January 2024 into historic commission arrangements in the motor finance sector, following a high volume of complaints and Financial Ombudsman Service (FOS) referrals. The FCA review introduced rules pausing the deadline for motor finance firms to respond to complaints involving DCA until 25 September 2024.
The FCA has used the temporary pause to conduct a skilled person review to assess whether the historical use of DCA mean a significant number of customers are owed redress and to determine whether a consumer redress scheme is necessary.
The FCA states that many firms in the review have had difficulty in supplying the data needed in the time requested - often due to data retention and storage issues. As a result, the FCA states it will be unable to set out the next steps of its review by 24 September 2024, as originally planned.
It also notes that ongoing judicial review proceedings of the FOS decision to uphold a complaint relating to the use of DCA will involve legal issues highly relevant to the FCA’s review. The outcome of this will therefore be important in informing the FCA’s final approach.
As such, the FCA proposes to extend the pause on the time firms have to respond to complaints from 24 September 2024 to 4 December 2025. Consumers will also have an extended time to refer their complaints to the FOS, until 29 July 2026.
The FCA notes it is currently unable to confirm whether any redress intervention is necessary, but highlights the findings from its ongoing review indicate this is now more likely than when the review started.
Subject to the outcome of the FCA’s assessment, it will either consult on ending the complaints handling pause earlier than December 2025, or design and consult on an alternative way of providing compensation to consumers, such as through a consumer redress scheme. This consultation is due in May 2025.
Where a DCA complaint is received between 17 November 2023 and 25 September 2024 and a final response has not been sent, firms will be required to write to the complainant informing them of the pause extension and to direct them to the FCA’s website. This is regardless of whether the firm has already written to the complainant explaining the initial pause.
Relevant record keeping and record retention requirements will also be extended by the 15 month period.
The FCA encourages firms to continue to progress complaints.
Prepare to contact relevant complainants.
Maintain operational capacity and effective policies and procedures to deal with incoming complaints.
Despite the extension to the pause in the complaints time limit, the FCA encourages firms to continue to progress DCA complaints where possible, by continuing to investigate and collect evidence to help with their eventual resolution. Firms should also be alert to complaints where DCA is not a relevant consideration, in particular those that are bundled together with DCA complaints (e.g. on affordability), and ensure they provide a final response within the usual eight week time limit.
Firms should prepare to contact relevant complainants to keep them informed of the extension to the pause in complaint handling time limits, and direct them to the relevant part of the FCA’s website.
All firms active in this market, including those not directly in scope of the FCA’s skilled person review, should continue to ensure they have sufficient operational capacity and effective procedures in place to deal with incoming complaints, customer contacts, and data subject access requests.
Firms should have assessed the extent to which they are impacted by the FCA’s review and be prepared to establish a remediation programme, if this is deemed necessary. The FCA identifies issues with firms’ data collection and management - firms should focus on addressing weaknesses in order to prepare for any action required following the outcome of the FCA’s review.
Firms’ boards and senior management should also be mindful of the impact the extension has on business-as-usual activity and continue to ensure appropriate oversight and governance is maintained across the rest of the business.
The consultation closes on 28 August 2024. The FCA plans to issue feedback to the consultation and a policy statement by 24 September 2024.
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.
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.
Martin Hislop
