Car finance scandal firms given more time to process complaints by FCA
As much as £16 billion could be up for grabs for car finance customers affected by discretionary commission arrangements
Car finance firms may be granted more time to respond to customer complaints regarding discretionary commission arrangements (DCAs), potentially delaying billions of pounds in payouts in what has been described as ‘the next PPI scandal’.
Last month, the UK’s Court of Appeal ruled that all commissions must be fully disclosed to the consumer before a finance contract can be entered. This effectively makes DCAs – which were banned three years ago, and saw lenders paying car dealers commission without the knowledge or consent of the buyer – illegal in the first instance. Indeed, any type of finance involving undisclosed commission is affected.
That means those who signed on to any such agreement in recent memory could be entitled to compensation.
Now, with the number of claims set to skyrocket, the Financial Conduct Authority has announced that it is planning to “consult on extending the time firms have to respond to consumer complaints”. This will involve a two-week consultation process, and would see the extension for companies to process complaints put in place by the middle of December 2024.
The Financing and Leasing Association’s Director General, Stephen Haddrill, praised the extension as a “sensible move” and while solicitors have warned that it could delay payouts, there are concerns within the car finance industry about what impact a wave of claims could have. Analysts suggest the whole debacle could cost banks and lenders as much as £16 billion.
With this in mind, the FCA has also called for the Supreme Court to expedite its decision on a challenge raised by the two firms involved in the Court of Appeal’s test cases – Close Brothers Ltd and Firstrand Bank Ltd – as a repeal of last month’s ruling could see only those who signed up for a DCA being able to claim. This would effectively halve the number of potential claimants.
The managing director of Sytner Finance, Mike Pierce, suggested on a webinar on the topic that customer outrage regarding DCAs may be overblown, stating that “the majority of our customers are quite relaxed about the fact that retailers need to make a living from this whole process”. He added that he believed that the general perception was that “if the transaction fits my criteria, why shouldn’t I proceed?”.
The FLA said a final decision by the Supreme Court would “restor[e] legal and regulatory certainty to this market”, with the FCA set to announce its recommended ‘next steps’ in May of next year. This, the watchdog has told the Treasury Select Committee, could take the form of an official redress scheme, which would force lenders to pay almost all car finance customers damages.
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