FCA publishes statement on next steps in the motor finance review

The FCA has published a statement confirming that, if it is shown that motor finance customers have lost out from widespread failings by authorised firms, it is likely to consult on a formal industry redress scheme. 

The FCA is currently reviewing the past use of motor finance discretionary commission arrangements (DCAs) and is seeking to understand if firms failed to comply with requirements relating to DCAs and if consumers lost out as a result. If they have, the FCA says that it wants “to make sure consumers are appropriately compensated in an orderly, consistent and efficient way.”

Since launching its review into the use of DCAs, Court of Appeal rulings in the key Hopcraft, Wrench and Johnson cases raised the possibility of widespread liability among motor finance firms wherever commissions were not properly disclosed to customers.

The Supreme Court will hear an appeal against the Court of Appeal’s judgment on 1^st to 3^rd April, and the FCA has been granted permission to intervene in the case to provide as much certainty as possible to firms, consumers and stakeholders.

Of relevance to insurance brokers, and the use of premium finance, is the FCA’s comment that, depending on the Supreme Court’s decision, it may also consult separately on changes to its rules. This may involve changes to rules in relation to credit broking and enhancements to the existing commission disclosure requirements in the CONC Sourcebook.

If, considering the Supreme Court's decision, the FCA concludes that motor finance customers have lost out from widespread failings by firms, it is likely to consult on an industry-wide redress scheme.

Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm’s failings and, if they have, firms must offer appropriate compensation. The FCA would set rules firms must follow and will implement checks in place to ensure they do. Subsequently, the responsibility would move from the consumer to the provider to put things right for affected individuals.

A redress scheme would be simpler for consumers than bringing a complaint. The FCA would expect fewer consumers to rely on claims management companies and it would be more orderly and efficient for firms than a complaint-led approach.

The FCA has confirmed that its next step will be to confirm, within six weeks of the Supreme Court's decision, if it is proposing a redress scheme and, if so, how it will progress this.