Car finance companies will have more time to handle commission claims

Britain’s City watchdog appears set to extend the deadline by which lenders must respond to customer complaints about historic fees on car loans.

The Financial Conduct Authority is proposing consultations to give car finance firms more time to address consumer complaints about deals involving non-discretionary fees.

He warned that car finance companies are “likely to receive a high volume” of complaints following a landmark court ruling last month.

The Court of Appeal ruling sent shockwaves through the market as it effectively imposed much higher levels of transparency requirements on lenders, some of which immediately suspended new business.

An extension, the FCA said, would give them more time to assess how complaints could be “handled efficiently and effectively”, and would avoid “messy, inconsistent and inefficient outcomes” for the market, lenders and customers.

The proposals will be published within a period of fifteen days; If moved forward, the grievance extension will take effect in mid-December.

On October 25, the court ruled that it was illegal for vehicle sellers to receive a commission from a lender for financing arrangements if the customer purchasing the car had not given “fully informed consent” to payment.

The FCA said it had since discussed the possible consequences of the verdict with 63 firms, the government and consumer representatives.

He intends to write to the Supreme Court asking if the sentence is appealable; Close Brothers and FirstRand, two of the lenders involved in the case, already plan to appeal.

Should the appeal be granted, the FCA wants the court to make a swift decision “given the potential impact of any ruling on the market and the consumers who rely on it”.

The FCA is calling on vehicle finance lenders to “use the time provided to ensure they have the resources to issue final responses to complaints at the end of a proposed extension”.

He added: “Car finance companies may also need to consider whether they should make financial provisions, as complaints need to be handled in accordance with the law.”

Since January, the FCA has been investigating the historic sale of “discretionary commission arrangements” (DCA).

Until they were banned, DCAs allowed dealers and brokers to set the interest rate in a car buyer’s financing agreement.

This encouraged brokers to charge customers higher rates without taking into account other factors, including the value of the loan, the length of the agreement or the customer’s credit score.

Concerns abound that the investigation could result in a PPI-style scandal, with banks and other lenders paying billions in compensation.

RBC Capital Markets estimated that Close Brothers, which has stopped offering new car loans to consumers since the court decision, could be hit with a bill of £640m, more than double its current market capitalisation.