Treliant Takeaway…FCA Update on Motor Finance Market

FCA Update on Motor Finance Market

• Source: fca.org.uk

Background

On January 11, 2024, the Financial Conduct Authority (FCA) announced a review of historic commission arrangements in the motor finance sector. This review could lead to an industry-wide consumer redress scheme under section 404 of the Financial Services and Markets Act 2000 (FSMA).

Many complaints have been made about discretionary commission arrangements (DCA), where brokers were incentivized to charge higher interest rates. These arrangements were banned by the FCA in 2021. Recently, the Financial Ombudsman Service (FOS) ruled in favor of the first complainants regarding DCAs, indicating a broader issue.

To manage this, the FCA has issued PS24/1, pausing the deadline for motor finance firms to respond to these complaints. The FCA is currently conducting a skilled person review to determine if consumers are owed significant redress. Findings were to be announced initially by September 2024, however, as reported on July 30^th, the deadline has been extended to May 2025.

By May 2025, the FCA expects to have analyzed the data collected from firms and assessed the outcome of the Barclays judicial review of the Financial Ombudsman’s decision to uphold a FCA complaint.

Takeaway

The FCA’s review will have a broad impact on the motor finance industry, all firms, including those not initially within the scope of the review, should have adequate operational plans and resources in place to cope with increased demand including potential direct regulatory enforcement.

Treliant, a trusted advisor to financial services clients, understands the importance of treating consumers fairly, complying with regulatory obligations, and remediating in a timely manner where mistakes have been made.  We design solutions aligned to your organizational goals not only ensuring compliance to regulatory requirements, but also effectively restoring trust with your consumer base.

There will inevitably be increased regulatory scrutiny across the market as the situation evolves, Treliant can support in an advisory, augmentation, or managed services capacity dependent on your requirements. The review outcome extension allows organizations more time to thoroughly and holistically assess the business impact and initiate steps to rectify the situation.

Highlights

• FCA is currently working to understand how DCAs affected the cost of credit for consumers over 14 years.
• The complaint handling SLA of eight (8) weeks for motor finance complaints has now been further paused to after December 4, 2025, at the earliest to prevent inefficient outcomes for consumers.
• FCA will outline next steps which may involve an industry-wide redress scheme for impacted consumers by May 2025.
• The FOS ruled in favor of two (2) consumers which has indicated a wider issue in the industry.
• Barclays Partner Finance has commenced a judicial review of the FOS’ decision to uphold a complaint relating to its use of a DCA.
• The FOS reported to have circa 20,000 opened complaints related to car finance commission in May 2024.

Considerations

• Prepare and plan for an increase in customer contacts, complaints, and potentially data subject access requests.
• Operational capacity to cope with additional demand should be reviewed.
• Prepare for potential regulatory action or enforcement which could involve an industry-wide customer remediation redress scheme.
• Consider the financial implications of past sales practices and potential compensation for unfair treatment to consumers.
• Access the extent to which your firm is impacted by the recent FCA and FOS announcements.

How Treliant Can Help

Our team has expertise in executing business reviews off the back of regulatory enforcements for Financial Services clients. We understand the preparation, action, and diligent execution required to comply with regulatory guidance or enforcement and can assist with:

• Providing advisory services to assess the business impact.
• Identifying operational capability and capacity planning.
• Running remediation programs as a Managed Service function.
• Providing skilled complaint/review handlers with extensive industry experience as an augmentation agreement to bolster your operational capacity.
• Deploying pre-vetted, trained staff at pace and can quickly be scaled up or down depending on your requirements.
• Advisory services to ensure compliance to regulatory obligations.