Financial Conduct Authority Delays Compensation Payouts for Car Finance Complaints

LONDON – The Financial Conduct Authority (FCA) confirmed that compensation payouts for car finance complaints will not begin until at least September 2024. The regulator announced its investigation into historical discretionary commission arrangements between lenders and car dealers in January 2024.

The FCA's investigation focuses on agreements where brokers or car dealers could adjust the interest rate on car finance loans taken out before January 28, 2021. This practice allowed them to increase their commission by setting a higher interest rate for customers.

Regulators banned this practice in 2021. The FCA initiated its review after receiving a significant volume of complaints from consumers and four county court judgments ruled against lenders on similar claims.

The FCA stated that it is currently reviewing past motor finance agreements. This review will determine if the agreements caused widespread misconduct and customer financial detriment. The regulator previously indicated that it expects a decision on potential redress by September 2024.

Megan Butler, Chief Enforcement Officer at the FCA, informed attendees at the Finance & Leasing Association Annual Dinner on Thursday that customers who submit complaints will likely not receive compensation before September 2024. She explained, "We want to make sure that whatever option we take, it is the right one. Our work needs to be thorough and well-evidenced."

Close Brothers, a financial services group, recently reported setting aside 100 million pounds to cover potential costs related to the FCA's review. Additionally, Lloyds Banking Group has put aside 450 million pounds to address similar claims. Overall, analysts estimate the potential cost to the industry could range from 600 million pounds to 16 billion pounds.

The FCA has paused the eight-week deadline for firms to respond to relevant customer complaints during its review process. This pause applies to complaints about motor finance agreements where a discretionary commission arrangement existed between the lender and the broker before January 28, 2021. The pause affects complaints received between November 17, 2023, and September 25, 2024.