Regulatory Update: Cp24-15 – Extending Temporary Changes To Complaint Handling Rules For Motor Finance Complaints

The FCA has recently provided an update on motor finance complaints involving Discretionary Commission Arrangements (DCAs). As part of their ongoing review, the FCA has proposed an extension to the pause on 56-day complaint handling requirements, opening a consultation process which is due to conclude on 28^th August 2024.

Let’s delve into the details and explore what this means for firms and consumers.

Background

On January 11, 2024, the FCA initiated a review to investigate whether motor finance customers were overcharged due to historical DCA practices. To facilitate this review, the FCA temporarily suspended the 8-week deadline for firms to respond to relevant customer complaints. This pause aimed to prevent inconsistent outcomes and market disruptions while assessing the issue.

The Extended Pause and delay to FCA guidance

The FCA now proposes to extend the current pause until at least December 4^th, 2025, and has pushed back its committed date for providing industry-wide guidance to May 2025. This is due to delays caused by:

Data analysis: The FCA needs more time to analyse data collected from firms. This analysis will help determine the impact of DCAs on credit costs for vehicle buyers.

Litigation: A judicial review of the Financial Ombudsman Service’s decision regarding a DCA complaint is underway which has the potential to set a precedent in terms of required customer treatments. The outcome of this review will significantly influence the FCA’s next steps.

Consultation on redress scheme: The FCA may consider implementing a redress scheme for affected consumers. This requires careful planning and consultation with industry stakeholders.

Consultation

The current consultation, running from 30^th July to 28^th August, will be of particular interest to consumers who have taken out motor finance agreements involving DCAs, motor finance providers, motor finance credit brokers including motor dealers, professional representatives bringing complaints to motor finance providers and credit brokers.

There are eight key questions which the FCA is consulting on:

1. Do you agree with our proposal to extend the pause until 4 December 2025 to allow us to complete our diagnostic work and, if necessary, allow time for us to design, consult on and implement the most appropriate redress pathways open to us?
2. What factors, including any unforeseen consequences, should we take into account when deciding whether the pause should end early?
3. Do you agree with the requirement that firms should inform complainants of the pause when they send a written acknowledgement?
4. Do you agree with the proposal to require firms to write to those complainants who have already received a written acknowledgment to explain that the pause has been extended?
5. Do you agree with our proposal that the rules should continue to extend the time limit for referring DCA complaints to the Financial Ombudsman from 6 to 15 months (or 29^th July 2026 if later) where the firm sent its final response within the timeframe specified in the rules?
6. Do you agree with our proposal to require firms to write to complainants who have already received a final response letter if the time they have to refer a complaint to the Financial Ombudsman has been extended?
7. Do you agree with our proposal that the period of the pause should not contribute to the 3-year period that firms are required to keep records of complaints for?
8. Do you agree with our proposal that the rule requiring lenders and credit brokers to maintain and preserve any records that are or could be relevant to the handling of existing or future complaints or civil claims relating to DCAs, is kept in place for an extra 15 months?

What this means for firms

As firms navigate the extended pause and delays to guidance, here are factors they can be considering right now. Despite the pause, firms working to establish what might be required of them and their operations now will set themselves up for success. There is of course a balance to be struck here with the cost of any commitments, but outlining your response early can be advantageous.

Consultation response: firms and individuals with specific views around the consultation questions can fill in the FCA’s online response form or email cp24-15@fca.org.uk.

Risk mitigation: have you begun to assess the potential exposure related to past DCA practices within your firm? Developing outline risk management strategies and scenario planning now may increase the speed at which you can initiate your response aligned to emerging guidance.

Remediation processes: firms should consider whether their remediation execution approach is fit for purpose, from how they mobilise operations in a potentially very active resource market, to their access to the technologies which make the execution process more efficient and allow minimal reliance on human resource.

Customer communication: keep early complainants informed about the ongoing review, its implications, and the reasons for the current delay. This clarity can have positive effects on advocacy later. Where customers have multiple issues, separating these from their DCA complaint resolve these elements can also provide better outcomes for customers.

Legal Awareness: stay informed around legal developments relating to the issues, including the judicial review and other relevant cases.

In summary, the FCA’s extended pause provides clear challenges for firms, who were planning for September 2024 guidance, however they can still proactively address the considerations outlined above to ensure they stay ahead in an ever-evolving landscape.

For more information on Huntswood’s ability to advise and support firms in this space, please contact Emma Mitchell, Director of Advisory Services using the form below.