Motor finance redress: An FCA technical specialist decoded

This unusual circumstance steered the FCA to react in an unusual way, which resulted in the adoption of extraordinary and temporary decisions in three key areas. According to James Tallack, technical specialist at the

FCA, the intervention in question has “made changes to the normal process for handling consumer complaints”.

The FCA have granted an exceptional nine-months pause to the firms facing an overload in complaints.

Throughout this period of time - that commenced on 11 January 2024 and will finish on 25 September 2024 - the financial regulatory body stated that this pause will enable it to complete a review about the current situation and, possibly, to consider if a different approach (e.g. consumer redress scheme) would be suitable, and, in the worst scenario, to find an alternative approach (which will postpone the ultimate date of the pause).

For what concerns the other two key areas, the FCA wants the firms to inform the complainants about the pause and, at the same time, it has extended from six to 15 months the term for referring discretionary commission complaints to the Financial Ombudsman. It’s self-evident that such decisions produce significant effects for both parties involved: customers and firms.

The tipping point, to use the same words as Tallack, is that this so far doesn’t affect the rules pursuant to the time limit for referring a complaint to the FSO which, “Needs to be six years from the date of the event being complained about or, if later, three years from the date of which the customer or the complainant became reasonably aware that they had cause to complain.”

Other points explained in the webinar are the three different conditions which must be met in order to enjoy the pause. Once again we refer to the words of Tallack, who alleged said: “First the complaint has to be about a regulated credit agreement that was taken out before 28 January 2021 when we banned the practice.

“Secondly, the agreement has to have been to finance a motor vehicle and that includes under hire purchase. Third, there must have been a discretionary commission arrangement between the lender and the broker of the agreement.

“And finally, the complaint must have been received between 17 November 2023 and 25 September 2024.”

By exclusion, the following are out of scope:

• Civil claims decided in the merits by a court
• Complaints that were not for motor finance - even if there was a discretionary commission element
• Complaints that whether already had a final response from the firm or have already been referred to the Financial Ombudsman.”

To address any issues or misunderstandings, the speakers mentioned that the successor to the FSA has established a dedicated webpage where the most relevant and up-to-date communication and information are shared.

Additionally, as part of fulfilling the second "key area," the FCA urges firms to provide customers with all necessary information and encourage them to visit the website for further details. Importantly, the presenters emphasised that this obligation applies to all customers, including those who have already lodged a complaint and meet the aforementioned criteria.

There are at least two other important points to address. Firstly, regarding bookkeeping, while there’s a general rule requiring firms to retain records for six years, there could be complications if a customer contacts a firm about a discretionary commission related to a purchase older than six years. Therefore, it’s advisable for firms to manage their documentation carefully and decide when to dispose of it.

Secondly, there’s a semantic issue to consider. Specifically, Tallack warns both firms and customers that the definition of "discretionary commission" in the rules is broad. Therefore, technically, this definition could encompass any complaint about a motor finance agreement involving a discretionary commission covenant, as long as it was submitted within the specified timeframe.

Given these clarifications, an insightful suggestion has been provided. Since the definition appears to cover numerous cases, the FCA advises firms to "separate the complaint into different parts." This means that in cases where complaints involve both discretionary commission and other administrative issues, it’s advisable for firms to address the non-commission-related issues promptly, thus avoiding delays.

Overall, it appears that the FCA is committed to prioritising customers’ interests. However, it’s also evident that the regulator is providing valuable guidance to firms to help them navigate the temporary changes in the financial market, aiming to maintain order and balance. We look forward to seeing what the next steps will entail.