FCA in the driving seat – an update for consumers on car/motor finance mis-selling

Background

In 2021, the Financial Conduct Authority (FCA) imposed a ban on all motor finance agreements that contain discretionary commissions directly linked to the lender’s interest rate, on the basis that these arrangements may have resulted in unfair interest rates for consumers. Specifically, discretionary commissions gave brokers and car dealers an incentive to increase customers’ costs, as the higher the interest rate they charged, the more commission they received from the lender.

Many drivers who took out car finance before the ban have been overcharged and consequently, there continues to be an influx of complaints in relation to this. Whilst the county court cases of Wrench and Hurst were not upheld, the Financial Ombudsman Service (FOS) has published numerous decisions in favour of the consumer. Most notably, the FOS decided that discretionary commissions create an inherent conflict between the interests of the broker and the consumer, and secondly that the court is likely to determine the relationship unfair under section 140 of the Consumer Credit Act 2006.

The FCA’s investigation

In light of the recent FOS decisions, the FCA announced on 11 January 2024 that it will launch a ‘skilled person review(s)’.

The purpose of this review is for the FCA to consider how lenders and brokers should handle these complaints and whether an alternative and more robust approach, such as a redress scheme, is required. It is currently expected that the FCA will reach this decision by September 2024.

While the FCA investigates, motor finance firms handling consumers’ complaints do not need to provide a final response and, unless the firm decides to do so, consumers will not be able to refer their complaint to the FOS. This temporary pause will end on 25 September 2024 which, unless the FOS decide to take further action, will commence the eight weeks in which the firm is expected to provide a final response to a complaint.

You should nevertheless still submit a complaint if you think you may have been affected by this issue.

Does your complaint fall under the FCA’s definition?

Any regulated business or individual consumer who has taken out a motor finance agreement before 28 January 2021 can apply, which encompasses agreements for cars, vans, motorcycles and leisure vehicles such as motor homes and caravans.

The FCA have defined a discretionary commission arrangement as having the following characteristics:

• The car was purchased using car finance before 28th January 2021.
• The agreement financed the purchase of a motor vehicle, including via hire purchase.
• The lender and car dealer had a ‘discretionary commission arrangement’ in place, linking interest rates to broker commissions.
• The firm received the complaint between 17 November 2023 and 25 September 2024, or sent its final response to the complainant between 12 July 2023 and 20 November 2024.

Therefore, while the investigation unfolds, it is crucial to file your complaint promptly and certainly before the FCA’s specified deadline of 25 September 2024.

How Can Ellis Jones Help?

If you are yet to make a complaint, or you have not received a final response since July 2023, then please do contact us for assistance.

Ellis Jones’ Banking & Finance Litigation solicitors have specialist knowledge and extensive experience in making similar complaints of this nature. We have successfully acted upon several high-profile mis-selling scandals in recent years, recovering millions of pounds for commercial and individual clients alike. We will always consider your individual circumstances to provide tailored advice at an affordable cost. For more specialist advice, guidance and help, please email us at banking@ellisjones.co.uk or give us a call on 01202 525333 for a no obligation consultation.