The decision to consult follows the Court of Appeal’s judgment in Hopcraft v Close Brothers Ltd, Johnson v Firstrand Bank Ltd, and Wrench v Firstrand Bank Ltd.
The FCA will consult on extending the time firms have to respond to consumer complaints about motor finance where a non-discretionary commission was involved, and for consumers to refer them to the Financial Ombudsman Service. The proposals are expected to be published within 2 weeks and, if taken forward, would mean the complaint extension is in place by mid-December 2024.
The FCA’s decision to consult follows the Court of Appeal’s 25 October judgment in Hopcraft v Close Brothers Ltd, Johnson v Firstrand Bank Ltd, and Wrench v Firstrand Bank Ltd.
Since that judgment, the FCA, as part of its close market monitoring, has undertaken extensive industry engagement. The regulator joined an industry and government discussion, convened its own industry roundtable and has spoken with 63 firms. The FCA has also discussed the judgment’s implications with consumer representatives.
Motor finance firms are likely to receive a high volume of complaints in response to the recent Court of Appeal judgment. Any complaint extension would allow them time to consider how these might be efficiently and effectively handled. This would help prevent disorderly, inconsistent and inefficient outcomes for consumers making complaints, motor finance firms and the market.
In Hopcraft, Johnson and Wrench, the Court of Appeal decided it was unlawful for the brokers (car dealers) to receive a commission from the lender providing motor finance without obtaining the customer’s informed consent to the payment. This required the consumer to be told all material facts, including the amount of the commission and how it was to be calculated. The judgment related to fixed commission in motor finance agreements as well as discretionary commission arrangements (DCAs), which were banned by the FCA in 2021.
The focus of the Court of Appeal decision is common law, rather than FCA rules or principles. Firms authorised by the FCA must meet wider legal requirements as well as regulatory rules. The interpretation of common law is rightly for the courts.
The 2 lenders involved in the cases intend to appeal.
The proposed complaint extension will cover at least the period until the Supreme Court decides whether to grant permission to appeal. The FCA will include options on the length of the proposed extension in its consultation.
The FCA will write to the Supreme Court asking it to decide quickly whether it will give permission to appeal and, if it does, to consider it as soon as possible, given the potential impact of any judgment on the market and the consumers who rely on it. If permission to appeal is granted, the FCA will consider intervening to share its expertise to assist the Court.
Motor finance firms will need to use the time provided to ensure they have the resources to issue final responses to complaints at the end of a proposed extension. Motor finance firms are also likely to need to consider whether they should make any financial provisions as complaints need to be handled in line with the law.
Customers who believe they have cause to complain about commission arrangements should make them as normal.
FCA review into historical DCAs in motor finance
In January this year, the FCA launched a review[2] of historical motor finance DCAs across several firms.
The review seeks to understand if there was widespread misconduct related to DCAs before the 2021 ban, if consumers have lost out and, if so, the best way to make sure any compensation owed is received in an appropriate settlement in an orderly, consistent and efficient way.
Alongside the review, motor finance firms were given more time to provide final responses to complaints about motor finance where a DCA was involved, and consumers more time to refer their complaints to the Financial Ombudsman. This was to prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market while the FCA reviewed the issue and determined the best way forward.
In September, the FCA further extended this[3] until 4 December 2025. This was because it had taken longer than expected to get the data needed for the review. Before deciding its next steps, the FCA also wanted to take account of relevant court decisions. These included the recent Court of Appeal judgment and the outcome of the judicial review, heard in October 2024, by Barclays Partner Finance of a Financial Ombudsman decision relating to a DCA in a motor finance agreement, on which judgment is expected shortly.
The FCA is considering what impact the Court of Appeal’s judgment has on the review into historical DCAs in motor finance, including for both its timeline and scope. This will inevitably be heavily influenced by any decision of the Supreme Court to hear an appeal and, should it do so, its timelines.