Motor Finance - FCA consults on pausing complaints handling but there is little comfort for firms

The FCA’s updates on 13th and 21st November provide some clarity about its next steps and expectations but leaves little comfort for firms.

Today’s communication from the FCA reveals there are around 335,000 DCA commission complaints lodged with lenders. The FCA is consulting on two options for extending the complaints handling pause for both DCA complaints and fixed commission complaints (non DCA commission complaints). One option is to align fixed commission/non DCA commission complaints to the already paused rules for DCA complaints, to 4 December 2025. The second option is to pause non DCA commission complaints for a shorter period to 31 May 2025 which is the best estimate of a decision from the Supreme Court to allow the appeals to the Court of Appeal Judgement handed down on 25 October.  If the appeals are allowed, a further extension would likely follow to allow the court action to conclude.

FCA proposes to extend the time firms have to handle complaints relating to motor finance commission | FCA

There are three key take outs from the FCA’s communication: 

Firms should anticipate a new influx of complaints about fixed/non DCA commission motor finance lending.

This means being ready to receive additional complaints and carry out capacity planning to gear up operationally. Customers who have had a complaint rejected by a firm, because it was not a DCA complaint can now complain again because of the judgement. Therefore, steps such as updating websites and communications should help consumers find information they need. Importantly, the FCA sets out its expectation that “Firms will need to use the additional time provided to ensure they have the resources to investigate and issue final responses to complaints at the end of the proposed extension.” This means getting on with the processing of data gathering and investigations now and being able to issue a decision once the court actions conclude. This is potentially complicated as firms may need to run investigations with parallel decision-making outcomes anticipating potential conclusions from the courts.

Firms should be meeting the common law standards as well as FCA’s own rules and guidance on a current and forward basis.

This means checking current processes and procedures meet the standards of disclosure and consent outlined in the judgement for all motor finance. This means clearly disclosing the commission and how it is calculated to the customer and obtaining consent. There is still an outstanding question about applying the Court of Appeal judgement to a wider suite of products, many firms may well be looking at this with their legal teams. 

Financial impacts

Firms should be calculating provisions and ensure they have sufficient financial resources to meet threshold conditions. A useful approach is to use scenarios and assumptions to calculate potential redress liabilities. All provisions should meet relevant accounting standards and will be bespoke to each firm. Separately, regulatory capital should ensure specific regulatory capital standards are met as well as sufficient financial resources retained to operate. 

Wider implications

There is a lot to read about the potential wider implications of the Court of Appeal judgement which could widen the scope of complaints about partially disclosed, hidden or secret commissions. The Court of Appeal’s decision goes further than the FCA’s current rules on commission disclosure in credit broking, which require disclosure about the commission but not the amount, unless requested by the customer. However, the FCA makes clear that the extent of the scope is one for careful consideration and not a rushed decision. Today’s communication from the FCA also mentions that it is awaiting the outcome of the Judicial Review decision.

If you would like to discuss any of these issues, please contact us. Richard Barnwell richard.barnwell@bdo.co.uk; Gareth Miller gareth.miller@bdo.co.uk or Alison Barker alison.barker@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.