The Financial Conduct Authority is reminding motor finance firms about their requirement to maintain adequate financial resources at all times, in the light of several lenders reserving millions of pounds in case of widespread compensation demands after the review of car loan commissions.
Close Brothers has set aside £400 million and Lloyds Black Horse has reserved £450 million in case the financial regulator’s review of historic discretionary commission arrangements decides that car buyers affected by such agreements were unfairly treated.
But not all motor finance lenders who used DCA in the past have done so, it seems. The FCA said: “We are currently reviewing the historical use of motor finance discretionary commission arrangements (DCA). We have observed firms taking different approaches to account for the potential impact of previous use of DCA on their financial resources. So, we are writing to firms to remind them they must maintain adequate financial resources at all times.
“While each firm will need to examine its own specific circumstances, we expect this would include planning for any additional operational costs from increased complaints and, where applicable, to meet the costs of resolving those complaints.”
The FCA is expected to update the industry on its review findings by September, The news that it was investigating historic car loan commission prompted some consumer champions such as Martin Lewis of MoneySavingExpert to alert consumers and start a river of complaints coming through to motor finance lenders and car dealers.
The FCA said that as its review continues regulated firms should continue to investigate the complaints they receive involving a DCA.
“This will help ensure firms are able to act promptly to resolve complaints if we decide the pause should be lifted and complaint handling should resume. Even if we decide that DCA complaints should be resolved through an alternative approach, it is highly likely that firms will need to take similar steps,” said an FCA spokesman.
Dealers, brokers and lenders are also urged to notify the FCA if they are involved in litigation relating to motor finance commissions that are subject to, or likely to be subject to appeal to the High Court or Court of Appeal.
And they should consider the Information Commissioner’s Office guidance on responding appropriately to data subject access requests.
“Firms should confirm, if a consumer asks, whether their agreement involved a DCA, even if they haven’t submitted a data subject access request.”
