The FCA review into motor finance commission arrangements: What you need to know
What is the FCA review?
The FCA investigation timeline
In January, the Financial Conduct Authority (FCA) announced that it will be investigating the historical use of discretionary commission arrangements (DCA) within the motor finance sector.
DCAs, which allowed brokers to earn commissions based on the interest rate an agreement was contracted at i.e. higher rates equals higher commissions, were banned in 2021 to ensure consumers were given the best rates available by removing incentives for brokers to push higher rates.
The current investigation is looking into cases where consumers may have been sold a higher finance rate by a broker to achieve a higher commission rate for agreements entered into between 6th April 2007 and 28th January 2021.
As part of the review the FCA have:
Temporarily amended the requirement to provide a final response to a complaint about motor finance agreements with DCAs within 8 weeks of receiving the complaint to 37 weeks.
Extended the time consumers have to refer DCA complaints to the Financial Ombudsman Service from 6 to 15 months if a business sent its final response to the consumer within the period specified in the rules.
This investigation is seeing a considerable amount of press attention, with four in ten consumers now aware of the investigation [1], and this publicity is driving more consumers to review their historic motor finance agreements.
What does this mean for retailers?
As of now, lenders are under investigation. However, to our knowledge at the time of writing, there are currently no retailers under investigation. This does not mean that retailers should be complacent as consumers who wish to complain will do so via the retailer who will have acted as brokers for any motor finance agreements reached.
Jo Davis of specialist law firm Auxillias highlights that at this time the impact on the industry and retailers is somewhat unknown. But that retailers must be equipped to deal with complaints.
Retailers must understand where the investigation is being applied to be able to deal with any complaints, with any motor vehicle sales that had a DCA, which could be applied to PCPs and HPs but not PCH or leasing agreements, being eligible for investigation.
As of now, Jo states that for retailers it is important to follow DISP 1.7 when dealing with any complaints received. The rules say that if the respondent (the firm that receive the complaint) have reasonable grounds to be satisfied that another respondent may be either solely or joint responsible for the allegation, they more forward the complaint or the relevant part of it to that respondent. Retailers will then need to inform the customer complaining that you have done this. It is a decision for the firm receiving the complaint to make based on the details of the complaint.
For now, any retailer selling on finance now or in the past should:
Implement all changes required by new DISP rules relevant to business.
Adjust and update customer-facing complaints information.
Anticipate and plan for increase in customer contact, e.g. whether their finance involved a DCA
Include a link to FCA’s dedicated consumer page in customer-facing info.
For complaints received but not judged – keep customers updated.
Record Retention - lenders and brokers must preserve all customer documentation they have.
The impact on finance now
The investigation is focussed on agreements from before the 2021 ban so there is no direct impact on new agreements that adhere to the updated rules.
We’re also not seeing any impact on the volume of buyers considering finance options to buy their next car, with the volume of finance calculator interactions on our marketplace up by 3.3% compared to this time last year.
For more information, check out our recent webinar with special guest Jo Davis of Auxillias who shares the latest updates on the investigation.
This investigation will be continuing for some months, and we understand it will be a concern for many retailers. We will continue to monitor the situation and provide you with the latest updates and advice as we receive it.
Sources
Auto Trader internal data