Motor finance providers are bracing for a potential storm as the Financial Conduct Authority (FCA) launches a major review into historical commission arrangements and sales practices. Triggered by a surge in consumer complaints, the investigation threatens to expose widespread mis-selling and leave firms facing financial and operational stress.
In this article BeyondFS’s Sophie Rothbarth explains the key issues, going on to examine the implications for the industry, and outlines critical steps that finance providers can take to prepare for an expected wave of new complaints and possible compensation payouts.
Responding to a sharp rise in consumer complaints received by the Financial Ombudsman Service (FOS), the FCA announced on 11th January 2024 a review of historical motor finance commission arrangements and sales across several firms.
The investigation will focus on Discretionary Commission Arrangements (DCAs), which were banned by the FCA in January 2021, and to what extent agreements before this date were unfair to customers. DCAs enabled brokers to adjust the interest rate they offered to customers for car financing. The higher the interest rate, the greater the broker’s commission, leading to a conflict of interest between broker and customer.
Finance companies have been rejecting complaints associated with these agreements, believing that they did not act unfairly and customers were not left worse off. However, in two recent instances, now seen as test cases, FOS took issue with this stance and found in favour of the customers, instructing the firms involved to pay out compensation.