The Financial Conduct Authority (FCA) is looking at extending the time finance firms have to deal with motor finance commission claims.
The finance watchdog is consulting to see whether to allow more time following a ruling by the Court of Appeal in October.
The proposals are expected to be published within two weeks and, if taken forward, would mean the complaint extension is in place by mid-December 2024.
The Court of Appeal ruling was based on fiduciary duty , which means dealers broker must act in the best interests of the customer.
According to finance specialist Grant Thornton the same ruling would seem to apply also to business lending – this has potentially significant consequences for lenders and for the economy if they pull their products.
The FCA has been in discussions with finance firms, government and consumers on the judgement.
It said motor finance firms are likely to receive a high volume of complaints in response to the recent Court of Appeal judgment.
Any complaint extension would allow them time to consider how these might be efficiently and effectively handled. This would help prevent disorderly, inconsistent and inefficient outcomes for consumers making complaints, motor finance firms and the market.
In Hopcraft, Johnson and Wrench, the Court of Appeal decided it was unlawful for car dealers to receive a commission from the lender providing motor finance without obtaining the customer’s informed consent to the payment.
This required the consumer to be told all material facts, including the amount of the commission and how it was to be calculated.
The judgment related to fixed commission in motor finance agreements as well as discretionary commission arrangements (DCAs), which were banned by the FCA in 2021. The two lenders involved in the cases intend to appeal.
The proposed complaint extension will cover at least the period until the Supreme Court decides whether to grant permission to appeal. The FCA will include options on the length of the proposed extension in its consultation.
The FCA will write to the Supreme Court asking it to decide quickly whether it will give permission to appeal and, if it does, to consider it as soon as possible, given the potential impact of any judgment on the market and the consumers who rely on it. If permission to appeal is granted, the FCA will consider intervening to share its expertise to assist the Court.
The FCA said motor finance firms will need to use the time provided to ensure they have the resources to issue final responses to complaints at the end of a proposed extension.
Motor finance firms are also likely to need to consider whether they should make any financial provisions as complaints need to be handled in line with the law.
Stephen Haddrill, Director General of the Finance & Leasing Association welcomed the move: “This is a sensible move, and one we had been discussing with the FCA since the Appeal Court judgment. However, it is just the first step – restoring legal and regulatory certainty to this market will require an expedited path to the Supreme Court, and a stay on claims in the lower courts pending the Supreme Court’s judgment.”