Solicitors representing clients with claims for mis-sold car finance have expressed frustration at the Financial Conduct Authority’s (FCA) delay in completing its work on the issue.
In announcing a review in January, the FCA said it expected to report on its findings on motor finance complaints involving a discretionary commission arrangement (DCA) by September.
As part of that, it paused the usual eight-week deadline for motor finance firms to provide a final response to DCA complaints until 25 September.
It is now proposing to move this to December 2025 to allow for more time to decide how to deal with the issue amid fears of the Financial Ombudsman being overwhelmed by complaints. It plans to publish the outcome of the review published by next May.
“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,” it said.
“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.”
People who bought cars, vans or motorbikes on personal contract purchase or hire purchase between April 2007 and 28 January 2021 potentially have claims.
Lenders gave brokers and car dealers discretion to push the interest rates higher, and the more they did that, the more commission they would receive.
Customers were rarely told about these DCAs. Around 40% of car finance deals had such arrangements until they were banned in January 2021 and the FCA estimates the average overpayment at about £1,100.
The FCA said this week that it was “working hard” to understand how DCAs affected the cost of credit for people borrowing money to buy a vehicle, 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.”
The consultation paper said that, since the FCA’s ban on DCAs in 2021, there has been “a notable increase in complaints to firms about this issue, coupled with a similar rise in data subject access requests (DSARs) by consumers and, particularly, claims management companies and other professional representatives. DSARs are a common precursor to complaints”.
The FCA said that data received from major motor finance lenders showed that, between January 2019 and the end of June 2023, firms closed around 30,000 motor finance commission complaints – since then, their number has increased by a factor of 10.
Many of these were likely to have concerned DCAs. “The dispute over whether firms are liable to pay redress to consumers is also reflected in the large number of cases relating to DCAs that have been referred to the county courts.”
The consultation paper said that, if the pause were to lapse, then firms would have eight weeks to respond to them, after which they would be eligible for referral to the Financial Ombudsman. This could mean hundreds of thousands of cases.
Hailed as potentially the ‘new PPI’, we have been tracking car finance cases as the big new growth area for consumer litigation practices.
Pogust Goodhead launched ‘myfinanceclaim.com’ and Bott & Co announced a “strategic collaboration” with claims management company Claimsline.
Consumer website Money Saving Expert has meanwhile created a hidden commission reclaiming guide and free complaint tool.
Founder Martin Lewis tweeted: “Clearly the delay is disappointing for those awaiting a decision, including the 2m who’ve submitted complaints via the MSE free tool. Yet it does signal it’s still looking favourably on ruling it is mis-selling and a payout is due – even though the finance firms have been pushing back hard both publicly and through the courts.”
He added that Sheldon Mills, the FCA’s executive director, consumers and competition, had told him that the possibility of a redress scheme was now “more likely” than when it started the review.
Mr Lewis commented: “So the chance of consumers getting paid back for misselling is more likely.”
Harry Grimshaw, litigation manager at Manchester consumer claims firm Barings Law, told Legal Futures that the announcement would not change its approach of litigating DCA claims.
Noting that the consultation paper revealed that more than 14 million finance agreements were subject to DCAs, he said: “From the perspective of those affected individuals, it is unfortunate that the FCA have not continued at the pace at which they set off in January this year. That said, it is welcomed that the FCA have reaffirmed their commitment to providing a viable route to compensation in the future.
“We are hopeful that those third parties said to have not cooperated with the FCA will now do so.”
In a statement, Bott & Co expressed disappointment that consumer claims were being delayed further.
“The FCA’s 2017 investigation revealed significant lender misconduct, so it is troubling that these issues have been known for seven years without resolution.
We are acting on behalf of clients that have already been waiting five years for their claims to be resolved. This prolonged delay adds to their financial and emotional strain. It is crucial that consumer rights are prioritised, and claims are resolved swiftly and fairly.
“Whilst the pause is disappointing, we welcome the FCA’s desire to bring clarity and order to this complex area of law.”
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