FCA lifeline for suppliers in car finance scandal: watchdog extends deadline for firms to respond to complaints

Britain’s financial watchdog is set to extend the deadline for car finance providers to respond to complaints about the payment of commissions in a scandal that has rocked the sector.

The Court of Appeal ruled last month that commissions paid between banks and brokers for car transactions may be illegal as they were not clearly disclosed to customers.

It sent shockwaves through the market as it imposed much higher levels of transparency requirements on lenders.

And it has drawn parallels with the payment protection insurance (PPI) mis-selling scandal, which ended up costing banks £50bn.

Estimates of the cost of the latest episode put it at £16 billion, although this figure is set to rise.

Lenders including Lloyds have seen their shares hit as concerns mount. Companies such as Close Brothers, one of the UK’s oldest commercial banks, have suspended new car loans.

But yesterday the Financial Conduct Authority (FCA) said it was considering giving firms more time to assess complaints so they could be “handled efficiently and effectively”.

“This would help avoid messy, inconsistent and inefficient results for consumers who file complaints, auto finance companies and the marketplace,” he said in a statement.

The FCA launched a review this year to determine whether drivers had been overcharged due to “discretionary commission arrangements” used by the sector before its ban in 2021.

This allowed dealers and brokers to set the interest rate on transactions, encouraging brokers to charge higher rates without regard to loan size, duration, or the customer’s credit score.

The FCA’s latest proposals, due in the next fortnight, if implemented, would give firms more time to respond to complaints.

It said: “Car finance companies are likely to receive a high volume of complaints in response to the Court of Appeal ruling.”

The watchdog also said it would write to the Supreme Court to ask if the ruling could be appealed.

He added that any extension would cover at least the period until the court decides whether to grant the appeal.

Close Brothers and FirstRand, both involved in the case, are already planning to appeal.

If granted, the regulator said it wanted a quick decision “given the potential impact of any judgment on the market and the consumers who depend on it.”