Watchdog puts UK’s motor finance sector under scrutiny
Britain’s finance watchdog says it will start looking into the motor finance industry, amid rising tensions between thousands of consumers and finance providers about commission arrangements.
In 2021, the Financial Conduct Authority banned incentives for brokers to increase the interest rate that a customer pays for motor finance. But many customers have logged complaints claiming compensation for unfair commission arrangements struck before the ban, the authority said.
Motor finance companies are rejecting most complaints because they believe they have not acted unfairly nor caused customer loss based on the applicable legal and regulatory requirements at the time, it said.
The Financial Conduct Authority said it will use its powers under the Financial Services and Markets Act 2000 to review historical arrangements and sales across several firms.
“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.”
It said it will pause the eightweek deadline for motor finance companies to provide a final response to relevant customer complaints.
Consumers will also have up to 15 months to refer their complaint to the financial ombudsman service, rather than the usual six months, the Financial Conduct Authority said.
“We’ve heard from more than 10,000 people who fear they were charged too much for their finance, and we know many more are waiting in the wings,” financial ombudsman service CEO Abby Thomas said.
Thomas said the financial ombudsman service has resolved two complaints where it found the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer, effectively creating a template for handling similar cases.
“Our decisions could signal the way forward for many more similar complaints that have not been resolved between firms and consumers,” Thomas said.