7:34 am, July 30, 2024
The Financial Conduct Authority (FCA) is proposing to extend the current pause to the time motor finance firms have to respond to customer complaints involving a discretionary commission arrangement (DCA), as it ponders whether to implement a redress scheme.
In a detailed update on its motor finance work posted on the London Stock Exchange this morning (Jul 30), the authority said it plans to extend the current pause to December 4, 2025.
It said it feels that by pausing complaint handling until that date, it will be able to confirm how many firms may introduce a redress scheme.
Or, it added, the authority might ask firms to start dealing with complaints ‘as usual’, and therefore consult on ending the pause sooner.
The FCA has confirmed that it will set out its next steps in its review into the past use of DCAs in May 2025.
By then, it expects to have analysed data from motor finance firms and ‘assessed the outcome of the Barclays judicial review of the Financial Ombudsman’s decision to uphold a DCA complaint’.
In the update, the FCA said: ‘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.’
It added: ‘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.’
News that the FCA was considering a formal redress scheme was made public on May 10.
Any such scheme would see motor finance firms that overcharged people forced to pay them damages.
The FCA announced on January 11 that it was probing cases of motor finance firms not paying out compensation to customers over now-banned commission arrangements.
Since then, the FCA has said that come companies are almost certainly guilty of commission failings, and finance firms such as Close Brothers and Lloyds Banking Group have been putting aside hundreds of millions of pounds in case they have to fork out.
