A review into historical motor finance discretionary commission arrangements has triggered a wave of customer complaints, with the potential for an industrywide consumer redress scheme.

Complaints relate to discretionary commission arrangements (DCAs), which were banned by the Financial Conduct Authority (FCA) in January 2021. These allowed brokers to adjust interest rates offered to consumers, which also resulted in adjustments to the levels of commission they received from the motor finance providers. This may have caused detriment to consumers in some instances.

It's been estimated by the FCA that loans sold with DCAs constituted three-quarters of motor finance lending between 2007 and 2020.

As well as the FCA’s expectation of an increasing volume of consumer complaints relating to DCAs prior to the ban, the Financial Ombudsman Service (FOS) issued two decisions in favour of complainants in January 2024. 

The FCA has therefore stepped in and is investigating whether consumers may have a valid claim for compensation relating to loans made before the ban was in place. It has also introduced a pause on the statutory response timeline – until 25 September 2024 – and aims to communicate a decision on next steps after 4 December 2025 at the earliest. 

Should ‘widespread misconduct’ be established, the regulator could instigate an industrywide consumer redress scheme under section 404 of the Financial Services and Markets Act.

While the review is ongoing, with associated media coverage, motor finance firms will continue to receive increased complaints. Firms need to consider and prepare for the likely impact of the review on their business now.

Timeline of the FCA’s review

  • 6 April 2007: Earliest date of affected agreements
  • 28 January 2021: FCA bans DCAs
  • 17 November 2023: Date from which complaints received regarding DCAs are subject to a 37-week pause in the deadline for motor finance firms to provide a final response to relevant customer complaints
  • 11 January 2024: FCA announces a Skilled Person review under Section 166 of the Financial Services and Markets Act 2000 of historical motor finance commission arrangements and sales across “several firms”
  • May 2025: FCA to set out “next steps” (extended from Q3 2024) and decision on whether to introduce an alternative way of dealing with DCA complaints 
  • 4 December 2025: The FCA is consulting on an extension to the pause on complaint handling, meaning affected firms
    would not have to issue a final response to DCA complaints until after 4 December 2025 at the earliest

What action should firms take?

In advance of the FCA setting out its next steps, in May 2025: at the least, we advise the following actions:

  • Prepare a detailed project work plan and record steps taken
  • Identify your population of DCAs issued during the relevant period
  • Consider the format, quality and availability of data, including any reliance on legacy systems
  • Establish a comprehensive document library of relevant documents stored in a logical order
  • Build a basic model to estimate the potential financial liability
  • Prepare for increased complaint volumes
  • Triage and investigate complaints proactively
  • Establish how the remediation or complaint handling exercise will be funded
  • Identify third parties to provide any future outsourced support

 

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Motor finance: FCA’s review of discretionary commission arrangements

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