FCA extends deadline for making car finance complaints as lenders struggle

The city watchdog has extended the deadline for car finance lenders to respond to complaints about historic car loan fees.

The Financial Conduct Authority (FCA) has given car finance firms until 4 December 2025 to provide a final response to non-DCA complaints, as it has done with complaints relating to discretionary commission arrangements .

It comes around two months after the Court of Appeal decided it was unlawful for a lender to pay vehicle sellers a finance settlement commission if the car buyer had not given “fully informed consent” to the payment.

Following the verdict, lenders expected to receive a massive volume of complaints from borrowers seeking compensation.

As a result, the FCA said it was necessary to lengthen the time firms have to handle complaints to stop “messy, inconsistent and inefficient outcomes” for consumers and businesses.

Many analysts believe the auto finance industry could end up paying tens of billions in damages to drivers who took out loans to purchase vehicles.

A senior FCA lawyer, Stephen Braviner Roman, recently suggested the total figure could exceed the estimated £50bn British banks paid to settle payment protection insurance claims.

This has led banks to set aside considerable sums and strengthen their capital position to cover the potential cost of any payment.

Close Brothers suspended dividend payments and agreed to sell its wealth management division to investment firm Oaktree Capital Management. It also briefly suspended the signing of any new vehicle financing agreements.

However, the Supreme Court allowed Close Brothers and MotoNovo owner FirstRand permission to appeal against the Court of Appeal decision in October, giving hope to lenders of a lower compensation bill.

Gary Greenwood, research analyst at Shore Capital Markets, said: “The range of interpretations and therefore possible outcomes regarding the financial impact for the industry and its participants remains very wide.”

The FCA has been investigating the car finance sector for many years, following concerns that car buyers were paying more than necessary in transactions.

An investigation began in January into DCA’s landmark sale, which allowed dealers and brokers to choose the interest rate on a vehicle buyer’s financing agreement.

This encouraged brokers to charge higher rates to consumers regardless of ancillary factors, such as the value of the loan, the length of the agreement, or the customer’s credit score.

DCAs were used in about three-quarters of all car finance deals between 2007 and 2020 until they were banned.

The FCA intends to publish the findings of its review sometime in May 2025.