- Financial regulator investigates car finance sector over loan costs
- But now the FCA has been forced to extend its investigation deadline until 2025.
Motorists who have been scammed with car finance deals will have to wait longer for answers to their compensation due to regulatory delays.
The Financial Conduct Authority (FCA) watchdog has been investigating car finance lenders following complaints from drivers that compensation for so-called “discretionary commission arrangements” (DCAs) was being unfairly refused.
Just three months ago the FCA warned lenders to ensure they had strong cash reserves in case of a wave of claims.
Brakes on: FCA to extend car finance investigation
But today the FCA said it would extend the timeframe of its investigation from September 2024 to May 2025.
The regulator said car finance lenders were unable to provide it with enough required information in time to meet the original deadline.
An FCA statement said: ‘The firms involved in our review have engaged with us constructively, but many have struggled to provide the data we need within the timeframe we requested.
‘Difficulties include firms not retaining older data and data being stored in multiple systems or distributed across lenders and brokers.’
The FCA has also extended the period within which consumers can refer complaints about car finance to the Financial Ombudsman Service (FOS) from six months to 15.
The FOS has accepted claims from two women – referred to as Ms Y and Ms L – who respectively entered into commission arrangements with Barclays and Black Horse, the car finance lending arm of Lloyds Bank.
It ruled that both were not treated “fairly and reasonably” because they were unaware that their brokers were being paid commissions and had the incentive to charge them more than Barclays or Black Horse would have accepted.
What is the FCA’s investigation into car finance?
In January, the FCA announced it would investigate car finance commission arrangements between 2007 and 2021.
The regulator wanted to ensure that motorists received adequate compensation from car finance lenders.
The FCA is also targeting DCAs, arrangements by lenders to allow brokers to fix the interest rate on car finance deals.
This incentivized brokers to charge customers higher rates regardless of other factors, such as the length of the loan contract, the customer’s credit score, or the value of the loan.
The FCA banned DCAs in January 2021, after the regulator found they cost drivers £300m a year more than the fixed fees used in car finance today.
