- Since January, the FCA has been investigating the historical use of DCAs
Motor finance firms could be handed more time to respond to customer complaints over non-discretionary commission arrangements after a landmark court ruling.
The Financial Conduct Authority (FCA) has been investigating the historical use of DCAs, a now-banned form of motor financing that allowed banks to set the interest rate on a car purchaser’s finance deal.
It has already extended the pause to the deadline for lenders to provide their final reply to complaints relating to DCAs to 4 December next year.
However, following a recent Court of Appeal judgement, it is considering giving the same deadline for replies to complaints involving non-DCA agreements.
In a major ruling last month, the court said it was illegal for vehicle sellers to gain a commission from a lender on finance deals if the car buyer had not provided their ‘fully informed consent’ to the payment.
Consequently, the FCA warned that motor finance companies were likely to receive a massive volume of complaints.
Probe: Since January, the Financial Conduct Authority (FCA) has been investigating the historical use of DCAs, a now-banned form of motor financing
It said extending the time to respond to non-DCA complaints would allow lenders to handle complaints ‘efficiently and effectively’ and ‘help prevent disorderly, inconsistent and inefficient outcomes’.
Nikhil Rathi, chief executive of the FCA, said: ‘The Court of Appeal’s ruling means many customers who bought a car using finance through a dealer could be owed compensation.
‘We want to make sure that consumers who are owed money get it in an orderly way, and that the motor finance market continues to provide competitive deals for the millions of people that rely on it.’
The FCA is considering two options for a deadline: 31 May 2025, reflecting the time the Supreme Court could take to permit the October judgement to be appealed, and 4 December 2025.
Analysts believe the overall compensation bill paid by UK car finance lenders because of motor finance commissions may resemble the PPI scandal, which cost banks £50billion.
Ratings agency Moody’s predicts lenders could pay up to £30billion, with smaller and more specialised firms like Close Brothers and Aldemore suffering a greater hit to earnings because of the enormous redress involved.
In a trading update on Thursday, Close Brothers warned of a potential ‘financial impact from measures taken in response to the court judgment,’ including higher operational costs and professional and legal fees.
It came as the firm revealed its loan book rose by 0.6 per cent to £10.2 billion in the three months ending October thanks to growth in its commercial divisions.
Mike Morgan, its group finance director, said: ‘We are confident in our underlying business, supported by our strong balance sheet and liquidity position, and remain committed to driving it forward.’
Close Brothers Group shares were 0.8 per cent up at 216.8p this morning, but the fallout from the FCA probe has caused them to slump by about 73 per cent this year.
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