10:16 am, December 11, 2024
The Financial Conduct Authority (FCA) has admitted for the first time that the ongoing car finance crisis could end up being as big as the PPI scandal.
Representatives from the watchdog yesterday (Dec 10) appeared before the Commons Treasury Committee, with the topic of motor finance inevitably coming up in the course of the sitting.
Among those to give evidence to the committee was Stephen Braviner-Roman, general counsel and executive director of legal, risk, compliance and corporate governance at the FCA.
He was grilled by Lib Dem MP, Bobby Dean, on the scale of the scandal, and what it is likely to mean for both firms and consumers.
Braviner-Roman told MPs that the recent Court of Appeal ruling against Close Brothers and RandBank had ‘undoubtedly expanded’ the scale of the crisis.
He said that the decision had broadened the scope of the FCA’s ongoing investigation to include fixed commission arrangements, having previously only been focused on discretionary commission arrangements.
He added that it would be ‘premature’ to say the scandal would not end up matching the levels of the PPI scandal, which saw lenders pay out a total of £38.3bn to consumers across the country.
Braviner-Roman said: ‘What has happened with the Court of Appeal case, which has prompted the latest discussion about the numbers, is that it’s brought into focus a different type of commission arrangement.
‘They’re often used in conjunction so the same individual consumer will often pay commission which is both a discretionary commission arrangement of the sort I described and a fixed commission, so the commissions are wrapped up together.
‘The scale of the problem that we were anticipating, and investigating with our intervention in relation to discretionary commission arrangements, has undoubtedly expanded with the Court of Appeal decision.
‘The Court of Appeal decision is obviously subject to appeal at the moment, so we don’t know whether that is going to be the final word exactly on the parameters of that ruling.
‘The work we’ve done in relation to the discretionary commission arrangements [is] we’ve paused complaints, we’ve put in a lot of work, working with firms, to understand the scale of the issue. We were anticipating coming back with the results of that work and explaining where we’d got to in May [2025].
‘We now need to take stock of the scale of that problem in light of the court of appeal decision and do some further analysis on what the wider implications of that could be, so we are working at that. We are not in a position – it is premature really – to say it will be a particular scale.
‘We previously said that, looking at DCAs alone, we do not think it’s the scale of PPI but that was when we were looking at DCAs alone.
‘It would be premature to say it’s definitely not the scale of PPI now.’
Our session on the work of @TheFCA has begun.
Watch live 👇https://t.co/qcQknGJqUQ https://t.co/6UKnuohIMp
— Treasury Committee (@CommonsTreasury) December 10, 2024
‘One unholy mess’
Braviner-Roman also explained how the FCA ended up banning DCAs in the first place, following an investigation which launched in 2017.
He added: ‘What’s gone on in relation to commissions in the motor finance industry is a situation which has been developing over a period of time.
‘We started looking intensely at it back in 2017 with some work which led to a ban of a particular type of commission arrangement, called discretionary commission arrangements, back in 2021 and a re-emphasising – a doubling down if you will – on some of the transparency requirements around commission arrangements generally.
‘Since 2021 we’ve seen a growth in complaints and in county court actions in relation to commission arrangements – in particular in relation to those discretionary commission arrangements – hundreds of thousands of complaints.
‘As a result of those growing numbers of complaints we intervened to take action because we could see a developing situation that was going to lead to potentially a disorderly, inefficient, unfair redress situation, both for consumers and for firms and for the functioning of the market.’
Later in the hearing, committee chair Dame Meg Hillier described the situation as ‘one unholy mess’, as she raised concerns about dealers and lenders not being transparent with customers.
Meanwhile, FCA chief executive Nikhil Rathi, encouraged consumers to contact their lender if they had any complaints.
‘If you are not satisfied with the terms of your finance agreement, you should contact your lender and put in a complaint to your lender if you are concerned,’ he said.
Away from motor finance, Rathi told the committee that the FCA ‘be able to stop everything’, amid concerns that government plans to cut red tape will encourage bad actors.
He added that there will be increased risk-taking as part of proposed changes by Government after Chancellor Rachel Reeves said last month that regulatory changes after the 2008 economic crash have ‘gone too far’.
