FCA proposes more time for car finance firms to handle rising consumer complaints

Earlier this year, the Financial Conduct Authority (FCA) extended the amount of time firms have to handle motor finance complaints where a discretionary commission arrangement (DCA) was involved.

The regulator has now proposed extending the deadline for other types of commission arrangements too. This suggests it could be broadening the scope of its probe.

It follows a Court of Appeal judgement in October involving lenders Close Brothers and FirstRand Bank. In these cases, the Court ruled in favour of consumers, deciding it was unlawful for car dealers to earn a commission without informing the customer and securing their consent. The judgement related to fixed commissions as well as DCAs. Both lenders intend to appeal.

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“Firms who provide motor finance are likely to receive a high volume of complaints in response to the judgement,” the FCA has said. As a result, it has proposed extending the amount of time firms have to handle complaints to allow the process to take place “efficiently and effectively”.

The regulator is looking at extending the deadline to either 31 May 2025 or 4 December 2025. The former deadline reflects the amount of time it could take to hear whether the Supreme Court has allowed an appeal. The latter would align with the current rules on DCAs.

“The Court of Appeal’s ruling means many customers who bought a car using finance through a dealer could be owed compensation,” says Nikhil Rathi, chief executive of the FCA. “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.”

Rathi says firms will need to use the additional time to make sure they have the resources needed to investigate and respond to complaints by the end of the extension period. He added that firms should also consider whether they need to make financial provision.

Major UK bank Lloyds has already set aside £450 million for potential redress. It is a significant provider of car finance through its Black Horse brand.

What is the FCA motor finance market review?

The FCA banned discretionary commissions for personal contract or hire purchase car finance agreements on 28 January 2021, as it was concerned that they created an incentive for brokers to increase how much people were charged for their car loan.

But the City watchdog is concerned at the level of complaints that firms are rejecting about the issue which are later being upheld when challenged through other channels.

It said firms are rejecting most complaints because they consider that they have not acted unfairly, nor caused their customers loss based on the applicable legal and regulatory requirements.

However, the Financial Ombudsman Service (FOS) has upheld issues that have been rejected by firms in recent cases and the FCA predicts this could prompt a significant increase in other complaints. Claims have also been brought in the county courts, some of which have been upheld.

The regulator said this suggests a significant dispute between some firms and consumers on whether firms have breached legal and regulatory requirements.

The FCA has used its powers to pause all complaints about DCAs until 4 December 2025 as it reviews the sector and these sales more widely. Today (21 November), it announced it is consulting on extending the deadline for non-DCAs too.

Could customers be awarded compensation?

The FCA’s review is currently ongoing, and any potential redress will depend on the outcome of its investigation.

“If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way and, if necessary, resolve any contested legal issues of general importance,” the FCA said earlier this year.

Commission payments were one of the key factors in the historic PPI scandal as bank customers often didn’t realise they were paying extra.

Martin Lewis, founder of MoneySavingExpert, has previously said that the FCA would not be conducting this review unless it was likely to find wrongdoing. He suggested on social media that payouts could be on the scale of PPI redress, which was close to £40 billion.

“The payout would be either the interest on loans, the commission, or the whole loan,” he said. “We’re possibly talking thousands back for many.”