Auto finance companies have taken extra time to handle commission complaints

Britain’s City Watchdog appears set to extend the deadline for lenders to respond to customer complaints about historic car loan commissions.

The Financial Conduct Authority is proposing to consult on giving car finance companies more time to deal with consumer complaints about deals involving non-discretionary commissions.

It warned that car finance companies are “likely to receive a large number” of complaints following a landmark court ruling last month.

The Court of Appeal ruling sent shockwaves through the market as it effectively imposed much higher levels of transparency requirements on lenders, some of which immediately halted new business.

An extension, according to the FCA, would give them more time to assess how complaints can be handled ‘efficiently and effectively’, and put an end to ‘shambolic, inconsistent and inefficient outcomes’ for the market, lenders and customers.

The proposals will be published within fourteen days; If this continues, it would result in the complaints extension coming into effect in mid-December.

On October 25, the court ruled that it was unlawful for car sellers to receive a commission from a lender on finance deals if the customer who bought the car had not given ‘fully informed consent’ to the payment.

The FCA said it has since spoken to 63 companies, government and consumer representatives about the possible impact of the ruling.

She plans to write to the Supreme Court asking whether the verdict can be appealed; Close Brothers and FirstRand, two of the lenders involved in the case, already plan to appeal.

Should the appeal be upheld, the FCA wants the court to make a decision quickly ‘given the potential impact of a judgment on the market and the consumers who rely on it’

Rhe FCA is calling on car finance providers to ‘use the time provided to ensure they have the resources to provide final responses to complaints at the end of a proposed extension’.

It added: ‘Car finance companies are also likely to need to consider whether to make financial provisions as complaints will need to be dealt with in accordance with the law.’

Since January, the FCA has been investigating the historic sale of ‘discretionary commission arrangements’ (DCAs).

Until they were banned, DCAs allowed dealers and brokers to set the interest rate on a car buyer’s financing agreement.

This encouraged brokers to charge customers higher rates regardless of other factors such as the value of the loan, the length of the agreement or a customer’s credit score.

There are many concerns that the investigation could result in a PPI scandal, with banks and other lenders paying billions in compensation.

RBC Capital Markets estimated that Close Brothers, which has stopped making new car loans to consumers since the court ruling, could face a bill of £640m, more than double its current market capitalisation.