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- Since January, the FCA has been investigating the historical use of DCA
Car finance companies could have more time to respond to customer complaints about non-discretionary commission arrangements following a landmark court ruling.
The Financial Conduct Authority (FCA) has been investigating the historic use of DCA, a now banned form of car finance that allowed banks to fix the interest rate in a car buyer’s finance agreement.
It has already extended the pause in the deadline for lenders to provide their final response to DCA-related complaints until December 4 next year.
However, following a recent ruling by the Court of Appeal, it is considering granting the same period to respond to claims relating to non-DCA agreements.
In a landmark ruling last month, the court said it was illegal for vehicle sellers to obtain a commission from a lender on finance deals if the car buyer had not given “fully informed consent” to payment.
Consequently, the FCA warned that car finance companies were likely to receive a massive volume of complaints.
Investigation: Since January, the Financial Conduct Authority (FCA) has been investigating the historical use of DCA, a now banned form of car finance.
He said extending the time to respond to non-DCA complaints would allow lenders to handle complaints “efficiently and effectively” and “help prevent messy, inconsistent and inefficient outcomes.”
Nikhil Rathi, chief executive of the FCA, said: “The Court of Appeal’s ruling means that many customers who bought a car using finance through a dealer could be owed compensation.”
“We want to ensure that consumers who are owed money receive it in an orderly manner and that the auto finance market continues to offer competitive deals for the millions of people who depend on it.”
The FCA is considering two options for setting a deadline: May 31, 2025, reflecting the time the Supreme Court could take to allow the October ruling to be appealed, and December 4, 2025.
Analysts believe the overall compensation bill paid by UK car finance lenders due to car finance fees may resemble the PPI scandal, which cost banks £50bn.
Ratings agency Moody’s predicts lenders could pay up to £30bn, with smaller, more specialized companies such as Close Brothers and Aldemore taking a bigger hit to their profits due to the huge compensation involved.
In a trading update on Thursday, Close Brothers warned of a possible “financial impact of the measures taken in response to the court ruling”, including increased operating costs and professional and legal fees.
It came as the company revealed its loan book rose 0.6 per cent to £10.2bn in the three months to October thanks to growth in its trading divisions.
Mike Morgan, its group chief financial officer, said: “We are confident in our underlying business, supported by our strong balance sheet and liquidity position, and remain committed to driving it forward.”
Close Brothers Group Shares They were up 0.8 per cent this morning at 216.8p, but the fallout from the FCA investigation has seen them fall by around 73 per cent this year.
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