FCA extends deadline for car finance complaints as lenders scramble
- The FCA wants to stop ‘disorderly, inconsistent and inefficient outcomes’
- The UK car finance industry could end up paying tens of billions in damages
The city’s watchdog has extended the deadline for car finance providers to respond to complaints about historic car loan commissions.
The Financial Conduct Authority (FCA) has given car finance companies until December 4, 2025 to provide a final response to non-DCA complaints, just as it has done with complaints about discretionary commission schemes.
It comes about two months after the Court of Appeal ruled that it is unlawful for a lender to pay car sellers a commission on finance deals if the car buyer has not given ‘fully informed consent’ to the payment.
After the verdict, lenders expected to receive a huge volume of complaints from borrowers seeking compensation.
As a result, the FCA said it was necessary to extend the time firms have to deal with complaints to stop ‘disorderly, inconsistent and inefficient outcomes’ for consumers and businesses.
Many analysts believe the auto finance industry could end up paying out tens of billions in damages to motorists who took out loans to buy vehicles.
Extension: The FCA has given car finance companies until December 4, 2025 to provide a final response to non-DCA complaints, just as it has done with complaints about DCAs
A senior FCA lawyer, Stephen Braviner Roman, recently suggested that the total amount could exceed the estimated £50 billion that British banks have paid to settle payment protection insurance claims.
This has led to banks setting aside significant amounts and strengthening their capital positions to cover the potential costs of any payouts.
Close Brothers has suspended dividend payments and agreed to sell its asset management division to investment firm Oaktree Capital Management. It also briefly suspended the acceptance of new car financing deals.
However, the High Court allowed Close Brothers and MotoNovo owner FirstRand to appeal the Court of Appeal decision in October, giving lenders hope of lower damages.
Gary Greenwood, research analyst at Shore Capital Markets, said: ‘The range of interpretations and therefore possible outcomes regarding the financial impact on the sector and its participants remains very broad.’
The FCA has been investigating the car finance sector for years, following concerns that car buyers were paying more than necessary for deals.
It began an investigation in January into the historical sales of DCAs, which allowed dealers and brokers to choose the interest rate on a car buyer’s financing deal.
This encouraged brokers to charge consumers higher rates regardless of additional factors such as the value of a loan, the length of the agreement or a customer’s credit score.
DCAs were used in around three-quarters of all car finance deals between 2007 and 2020, until they were banned.
The FCA plans to publish the findings of its investigation sometime in May 2025.
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