Motor Finance - what happens now?

The shape of a Motor Finance Complaints review is the big question of 2025. In this article we look at what might happen and potential areas for consultation by the FCA.

Just to recap, the FCA has said a review of Discretionary Commission Arrangement (DCA) complaints is now more likely than not. It has already communicated that these arrangements are unfair and banned them from January 2021. The position on fixed commission, or non DCA complaints, is less certain with hopes pinned on a Supreme Court ruling that seeks to clarify the potential scope of the judgement from the Court of Appeal in October last year.

The FCA has said it will consult on the exact form of a review for DCA complaints. It has some options although it has commented on a preference for a complaint led approach. There will need to be a consultation to clearly set out the redress approach and methodology, and any redress calculation.

Why might a complaint led approach be preferred by the Regulator?

A complaints led approach is an ‘opt in’ redress scheme which means consumers can decide if they wish to be part of the redress process. An example is PPI where consumers made complaints either directly or via a Claims Management Company.

An opt out approach would see all consumers sold motor finance via a DCA agreement being included in a redress process. Given the time frames and numbers of customers, this might not seem a practical approach available to the FCA. It is likely that records and data going back to 2007 are either missing or inconclusive. The FCA has commented that its review results were delayed because firms were not able to find all the data.

What could a complaint led review look like?

In a sense the process has already started. Consumers are being encouraged to make a complaint to lenders who provided motor finance. The complaints handling rules have been paused, but crucially, this only means the time period to make a final determination and communicate that to the customer is paused. That means firms should continue planning and activities such as locating data and records, setting up customer journeys, providing information and support to consumers, and getting reporting processes in place.

The FCA may take a dim view of those firms that stockpile complaints waiting for a Redress Policy Statement before making a start and could lag behind peers.

Questions a Redress Consultation may need to consider?

Moving to a formal review will require consultation, even with a complaint led approach. It is likely the FCA will issue a consultation document swiftly after the Supreme Court Judgement is handed down. We think there are three important questions for a consultation on DCA commission complaints

-?????? How should redress be calculated?

-?????? How to deal with poor data or missing records?

-?????? Should there be an ‘end date’?

So far, redress determinations by the courts and the Financial Ombudsman Service have varied in approaches and there is room for different points of view. There will need to be a clear, consistent, and fair way to calculate the redress due. For example, should it be a return of commission paid, or a calculation based on an interest rate without any uplift by the broker. The implications of the Supreme Court ruling may also need to be considered.

Handling data gaps may raise a few consultation questions. The FCA’s Consumer Duty and Vulnerable Customer Guidance may form the guiding principles to the approach here. It is likely that all efforts will need to be made to track down data across a range of sources (dealers, brokers, and lenders as well as consumers) with extra care given to approaching customers for information. The FCA could be unlikely to support approaches that exclude customer complaints for lack of data without demonstrating considerable efforts have been made. The Consumer Duty and Vulnerable Customers Guidance both increase the expectations about customer communications and support, this could cover maintaining contact with customers over the review period: essential if a payment of redress is to be made.

Remember Arnie?

The FCA consulted on an end date for making complaints about PPI which enabled closure to the review process (PS 17/3 Payment Protection Insurance complaints). This was a lengthy process with the original CP 15/39 published in November 2015, and a further CP 16/20 published in August 2016. The agreed end date for complaints was 28 August 2019, in the run up to the deadline, there was a two-year PPI advertising campaign by the FCA featuring an automated Arnie. During the final 14 months of the PPI campaign 8.9m customers submitted complaints, more than double the volume in the first 10 months. It would be desirable for a consultation to include proposals for an end date to enable firms to move forward with some certainty.

Subject to an outcome from the Supreme Court, a consultation that also includes the approach to non DCA commission (fixed commission) in motor finance, or wider, is potentially much more complex and may require a suite of initiatives. If the FCA chooses to combine DCA and Non DCA commission complaints into a single redress consultation, it could take much longer to clarify all the issues.

If you wish to discuss this topic further please contact: Richard Barnwell [email protected]; Alison Barker [email protected]; Gareth Miller Gareth Miller @bdo.co.uk

BDO UK LLP is the 5th largest tax, audit and advisory firm in the UK. The BDO financial services advisory practice is a team of over 180 specialists, including ex regulators and people who have held senior positions in regulated firms. This experience helps financial services clients to understand the impact of regulation and mitigate risk.