LONDON (Reuters) -Britain’s finance watchdog said on Thursday it would start looking into the motor finance industry, amid rising tensions between thousands of consumers and finance providers about commission arrangements.
In 2021, the Financial Conduct Authority banned incentives for brokers to increase the interest rate that a customer pays for their motor finance. But many customers have logged complaints claiming compensation for unfair commission arrangements struck prior to the ban, the FCA said.
Motor finance companies are rejecting most complaints because they believe they have not acted unfairly nor caused customer loss based on the applicable legal and regulatory requirements at the time, the watchdog said.
The FCA said it would use its powers under S166 of the Financial Services and Markets Act 2000, to review historical arrangements and sales across several firms, to ensure fair practice.
“If we find there has been widespread misconduct and that consumers have lost out, we will identify how best to make sure people who are owed compensation receive an appropriate settlement in an orderly, consistent and efficient way,” the FCA said in a statement.
The FCA said it would pause the eight-week deadline for motor finance companies to provide a final response to relevant customer complaints.
Consumers will also have up to 15 months to refer their complaint to Financial Ombudsman Service (FOS), rather than usual six months, the FCA said.
“We’ve heard from more than 10,000 people who fear they were charged too much for their finance, and we know many more are waiting in the wings,” FOS chief executive Abby Thomas said in a statement.
Thomas said FOS has resolved two complaints where it found that the way the commission arrangement between the lender and the car dealer worked was unfair on the consumer, effectively creating a template for handling similar cases.
“Our decisions could signal the way forward for many more similar complaints that have not been resolved between firms and consumers,” Thomas said.
(Reporting By Sinead Cruise and Huw Jones, editing by Elizabeth Howcroft and Jane Merriman)