FCA - Update on motor finance work

Financial Conduct Authority - Update on motor finance work

We're proposing to extend the current pause to the time firms have to respond to consumers about motor finance complaints involving a discretionary commission arrangement (DCA).

We now intend to set out next steps in our review into the past use of DCAs in May 2025. By then, we expect to have analysed the data we have collected from firms and assessed the outcome of the Barclays judicial review of the Financial Ombudsman's decision to uphold a DCA complaint.

Our next steps could involve consulting on a redress scheme. This is why we intend to take the precautionary step of pausing complaint handling until 4 December 2025, as it may take until then to confirm how firms would implement it. Or it could involve asking firms to start dealing with complaints again as usual, in which case we would consult on ending the pause earlier.

If we can set out our proposed next steps sooner, we will.

Our review

On 11 January 2024, we announced a review into whether motor finance customers have been overcharged because of the past use of DCAs.

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When we confirmed this work, we paused the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. We introduced the pause to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while we assessed the issue and determined the best way forward.

We're working hard to understand how DCAs affected the cost of credit for people borrowing money to buy a vehicle.  We're assessing thousands of records spanning 14 years.

Firms involved in our review have engaged with us constructively, but many have struggled to supply the data we need within the requested time. Reasons for this include firms not keeping older data, and data being stored on multiple systems, or being spread between lenders and brokers. While we now have the necessary data, the delays mean we will not be able to set out next steps by the end of September 2024 as expected.

Furthermore, Barclays Partner Finance has also started judicial review proceedings of the Financial Ombudsman Service's decision to uphold a complaint relating to its use of a DCA. A hearing is expected to take place in the autumn, where the court will consider whether to grant permission and hear the claim. The judicial review will consider legal issues highly relevant to our review. We are also expecting judgments soon in other cases heard by the Court of Appeal that may be relevant in determining our next steps.

Complaints handling pause

We are therefore proposing to extend the current pause to the 8-week deadline for firms to respond to motor finance complaints involving a DCA. Under our proposals, firms will not have to issue a final response to DCA complaints until after 4 December 2025 at the earliest.

The pause allows us time, if necessary, to design, consult on and introduce an alternative way of dealing with DCA complaints, such as a consumer redress scheme. It is too early to say if we will intervene in this way, but based on our work so far, it is more likely than when we started our review. We consider allowing for this possibility preferable to the uncertainty and greater burden for firms created by a shorter pause that may be subsequently extended.

If we decide not to introduce an alternative way of dealing with complaints, we'll consult on ending the pause earlier. In this case, firms would start dealing with complaints again in the usual way.

We intend to set out the findings of our review, and whether we plan to introduce an alternative way of dealing with DCA complaints by end of May 2025. We've explained the steps we must take to reach this point.

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Motor finance is an important market, serving over 2 million consumers a year. In deciding next steps, we'll consider how to make sure consumers are appropriately compensated and the market continues to work well, with effective competition.

As with most types of consumer credit, motor finance is not protected by the Financial Services Compensation Scheme. If firms fail, consumers may not get back money they are owed.

Making a complaint

While firms have longer to deal with DCA complaints, consumers should be aware you can still complain to your provider and there are time limits for doing so. Check if our work applies to you and how to make a complaint.

We're also proposing to give consumers until the later of 29 July 2026 or 15 months from the date of their final response letter from the firm, to refer a complaint to the Financial Ombudsman (instead of the usual 6 months). This is so consumers will not have to decide whether to refer their complaint to the Financial Ombudsman before we announce next steps.

We have also published a podcast, where our CEO Nikhil Rathi discusses this announcement in further detail.