FCA reviews potential overcharging of motor finance customers
- In January 2024, the FCA began a review of motor finance to determine if customers were overcharged.
- This investigation focuses on past discretionary commission arrangements between lenders and brokers.
- Customers who were affected may receive compensation, and the FCA will publish findings in May 2025.
In January 2024, the Financial Conduct Authority (FCA) in the United Kingdom announced an extensive review to investigate whether motor finance customers had been overcharged. This review was propelled by concerns concerning discretionary commission arrangements (DCAs) that some lenders had engaged in with brokers prior to January 28, 2021. These arrangements allowed brokers to earn commissions based on a percentage of the interest payments from car loans, leading to potential increases in costs for consumers without their knowledge. Noteworthy firms implicated in this issue include Barclays, Santander, Close Brothers, and Lloyds Banking Group, which operates through its Black Horse finance arm, the UK's largest motor finance provider. As a part of this ongoing assessment, the FCA paused the deadline for banks and lending firms to respond to customer complaints, issuing a directive to scrutinize records spanning the last 14 years regarding these commission dealings. The FCA's decision regarding the implementation of a consumer redress scheme focused on addressing the potential mis-selling of car finance products is expected to be announced following a landmark Supreme Court hearing in early April 2025. This redress scheme aims to streamline the compensation process for impacted individuals, allowing lenders to proactively assess and address the cases of customers they may have wrongfully charged. Meanwhile, the FCA is expecting to publish its findings from the investigation in May 2025, which will also include guidance on the next steps for affected customers. Motor finance is a significant market in the UK, servicing over two million consumers every year; therefore, many individuals might be entitled to financial relief if they find themselves subjected to a mis-sold finance product due to the aforementioned arrangements. Consumers are advised to reach out to both their lender and broker if they suspect they have been impacted by this scenario, following an established process for complaints that escalates to the Financial Ombudsman Service should initial resolutions be unsatisfactory.